, was launched in April. It trades on the American Stock Exchange like any listed security.
Silver held in the ETF has climbed closer to the 110 million ounce mark (3,400 tonnes), which is equal to about one-fifth of annual mine production.
ETFs allow investors to trade securities on an exchange and give them a return based on a commodity price without the need to trade futures or to take physical delivery.
"Various things are going on. You do have the ETF still in the minds of many people and then you are looking at the physical market," said Michael Widmer, director of metals research at Calyon Corporate and Investment Bank.
"Over the last few years, you did have a gradual drawdown in above-ground inventories ... If you have got further (investor) inflows into the market, silver could easily go above $15 and move towards $20 next year," he added.
FALLING STOCKS
Identifiable silver stocks fell to 608 million ounces by the end of 2005 from 723 million a year earlier.
Analysts said that the gold-silver ratio, which shows the number of ounces of silver needed to buy one of gold, has indicated a strengthening silver market. On Tuesday, the ratio was at 46 to 1, down from 62:1 in early this year.
Precious metals consultant GFMS said last month that strong investor buying of silver, fuelled by the ETF, was likely to take the price to $15 an ounce in the next few months despite lower fabrication demand.
But GFMS cautioned that as investors were building up stock through ETF, they might decide to liquidate at some point, although the risk was moderated partly because of the fund's broad ownership.
VULNERABLE IN NEAR TERM
Some analysts said that the market was vulnerable to sharp corrections in the near term despite bullish sentiment. They also pointed out that the inflow into the ETF was yet to create a liquidity problem.
"People are nervous about another squeeze in silver, with the amount of metal in the ETF accumulating," said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment Bank.
"But there is not any short-term tightness and it would probably take another 25-30 million ounces of silver to get to another squeeze situation, so we are quite away from that."
Analysts said mine supply was also gradually rising and that would partially compensate for the metal going into the ETF.
According to market estimates, mine production was expected to rise by about 2.5 percent to 20,600 tonnes in 2007 from the current year.
Stephen Briggs, economist at SG Corporate and Investment Banking, said the ETF had accumulated a huge amount of silver compared to the size of the market, but that was not enough to lift the market to new highs.
"It's possible that the market would start to get bored with the ETF story when the rest of the fundamentals are not that brilliant."
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