Silver ETFs saw the strongest inflows of any single commodity in the first quarter of 2013, a recently released quarterly commodities report from ETF Securities reveals. Specifically, net new buying of silver products totaled $875 million as investors rotated into cyclical assets.
North Americans were the top investors in silver ETFs in Q1, spending $732 million compared to Europe's $126 million. However, both regions clearly preferred the white metal over gold. Nick Brooks, head of research and investment strategy at ETF Securities, explained to Silver Investing News that there was a consistent move out of gold, which saw a massive $9.2 billion in net outflows from ETFs, into more cyclical commodities. Rarely is a trend so cleanly obvious as it was in the first quarter of this year, he said. Brooks pegged the flow out of gold largely on positive sentiment about the US economy, noting that improving data drove expectations for higher interest rates. Also, speculation that the Fed may ease off on the printing press gave the dollar a boost. Investors reacted by cutting their positions in gold and moving into the type of assets that tend to perform in a rising growth environment, Brooks said. And silver was one of the beneficiaries of that shift. It is not clear exactly how much of the money that came out of gold went into silver, but what is clear is that gold ETFs saw heavy liquidation as silver ETFs saw strong inflows. Given that silver tends to benefit from many of the same drivers as gold, it may seem strange that the white metal did not also suffer from weak ETF demand. Brooks explained the situation with the comment, "historically, silver performs very well in an environment of rising growth, certainly outperforming gold in that environment. Recently, most silver investors have been going in more for the metal's cyclical characteristics, not for its alternative currency, store of value characteristics.”