Tags: Silver | ETF | Debuts

Silver ETF Debuts

Friday, 28 April 2006 12:00 AM

The latest report on the economy, released by the Commerce Department on Friday, showed that consumers, businesses and government all did their part in terms of robust spending and investment to spur a healthy pace of growth in the January-to-March quarter.

The 4.8% increase in the gross domestic product marked a vast improvement from the feeble 1.7% annual rate registered in the final quarter of 2005, when fallout from the Gulf Coast hurricanes, including high energy prices, prompted people and companies to tighten their belts.

The GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the economy's fitness.

The first quarter's performance – the best showing since the third quarter of 2003 – was close to economists' expectations. Before the report was released, private analysts were forecasting the economy to clock in at a 4.9% growth rate.

A recent spate of good economic reports, however, hasn't helped President Bush's standing with the public. He is shouldering his lowest-ever job approval rating, at 36%, according to an AP-Ipsos poll.

Even with the economy zipping ahead in the first quarter, inflation actually moderated.

An inflation gauge closely watched by the Federal Reserve showed that core prices – excluding food and energy – rose by 2%, down from 2.4% in the fourth quarter.

The inflation reading, however, was taken before oil prices zoomed to a record high of more than $75 a barrel last week. Although prices have retreated since then, they still remain high.

A separate report from the Labor Department suggested that the strengthening job market isn't fanning inflation. Employers' cost to hire and retain workers – wages and benefits – rose by 0.6% in the first quarter, the slowest pace in seven years. That mostly reflected less generous benefit packages.

To keep inflation at bay, the Fed is expected to boost interest rates again at its May 10 meeting, which would mark the 16th increase since June 2004. But after that, the central bank could take a break - perhaps temporarily - in its 2-year-old rate raising campaign, Fed Chairman Ben Bernanke suggested Thursday.

Bernanke and other Fed policymakers indicated that they want to proceed with caution because they don't want to hurt economic activity by pushing rates up too high.

The new silver exchange-traded fund (ETF) is scheduled to begin trading this morning on the American Stock Exchange. The ETF will debut as the iShares Silver Trust, trading under the symbol SLV.

Barclays received final approval for the silver ETF from the Securities and Exchange Commission yesterday morning. The fund will carry a fee of 0.5% of assets, says Barclays.

The bank deposited 1.5 million ounces of silver earlier this week to back the fund, according to MarketWatch. A share in the silver ETF represents 10 ounces of the silver deposit. 

The silver ETF, because it is backed by actual silver bullion, is expected to drive prices higher, just as the gold ETF did. However, cautious investors must remember that when the StreetTracks Gold Trust (GLD) debuted, gold initially pulled back before taking off. 

It's already been a busy week on the precious-metals market, with gold hitting $649 per ounce on Wednesday and silver cresting at $14.68. Both metals pulled back on Thursday but are surging again in hopes of regaining and surpassing their highs.

Mike Fulgenz, president of Universal Coin and Bullion, says the week of April 14-21 will see gold's biggest weekly gain in four years – as well as gold's highest price since 1980. "Gold rose over 5% for the week and 46% in the past 12 months," says Fulgenz.

"So far this year, gold has reached a series of 25-year highs and silver has hit many 23-year highs. In recent weeks, silver rose the fastest, so it should come as no shock that silver also fell rapidly last week. But silver has still outstripped gold's gains since the start of 2006, 2005 or 2002," says Fulgenz.

"For this year, silver, at $13.20, is up 50% in 2006, while gold is 'only' up about 20% to 25% in 2006 so far."

Copper and zinc hit all-time records, after their sixth straight weekly gain.  Five years ago, commodity funds were almost unknown, yet now commodity funds will attract $130 to $140 billion of investment capital in 2006, a 50% increase over the $90 billion in 2005.

Now, about one-quarter of those polled are guessing again, expecting another rate rise at the June Fed meeting.

"All the data is pointing to a lot of momentum, and if (the Fed) wants to slow down the economy, why stop in May?" Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, tells the newspaper.

Soaring energy prices are viewed as the biggest threat to the economy, with a housing slowdown coming in second. One expert says that a soft landing for real estate could see the economy glide along unharmed, but a potential hard landing could stymie growth.

"The median forecast of the economists was for second-quarter economic growth to proceed at a healthy 3.5% annual pace, a tick up from the January 3.4% prediction," USA Today reports.

"Business spending is expected to be higher and inflation a bit stronger than earlier forecast. Consumer inflation is forecast at a 3.4% annual rate in the second quarter, from the previous 3.1% outlook."

Last month,

And now that prediction is coming true.

The first quarter of 2006 recorded a 72% year-over-year increase in foreclosures nationwide, according to a report from RealtyTrac. Foreclosures are up a huge 38% from the fourth quarter of 2005. That means one in every 358 homes in the country is in some stage of foreclosure.

"The sharp increase in foreclosures in Q1 continues a steady upward trend that we've observed since the beginning of last year," said James J. Saccacio, chief executive officer of RealtyTrac. "Foreclosures have now increased in four consecutive quarters and are on track to go above 1.2 million in 2006, which would push the nation's annual foreclosure rate to more than 1% of U.S. households."

Homeowners who thought the days of low interest rates and skyrocketing home prices would last forever are getting caught with big debts and, in some cases, sinking home values.

These same people refinanced their homes in record numbers and cashed out their equity to maintain a high standard of living. But now those debts are coming due – and homeowners are missing their payments.

Which states have the highest numbers of foreclosures?

That would be Texas, Florida and California. Texas had the most first-quarter foreclosures, with 40,236, while Florida and California – two states that have had double- and triple-digit home price increases – have the second and third most foreclosures, respectively. 


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The latest report on the economy, released by the Commerce Department on Friday, showed that consumers, businesses and government all did their part in terms of robust spending and investment to spur a healthy pace of growth in the January-to-March quarter. The 4.8%...
Friday, 28 April 2006 12:00 AM
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