Commodities | May 08 2006
By Chris Shaw (Tokyo)
The recent establishment of an exchange traded fund or ETF in silver has been given much of the credit for the boom in silver prices of late, but now the possibility famed investor Warren Buffett has liquidated his long position may spark even more excitement in the metal.
According to Silver Stock Report’s Jason Hommel, Buffett indicated at the Berkshire Hathaway annual meeting last weekend he has sold his holding of 130m ounces, admitting he erred by selling too soon and so not making much out of the position. The report suggests if Buffett is out it should be positive for silver prices, as it removes the potential overhang of a large market position and suggests silver stockpiles are actually lower than had been expected.
This can be explained in part by the fact silver is one of the most widely used commodities, as aside from jewellery demand it is also used in a number of industrial applications such as electronics and traditional photography. The establishment of the silver ETF is also a positive, as most market estimates suggest it has been required to purchase more than 100m ounces to meet initial buying interest.
The silver market has also tightened as it, like most of the other commodities, has benefited from a lack of supply at the same time as demand is increasing. The lesson according to Hommel, a bull on precious metals and silver in particular, is not to sell too soon.
He argues Buffett made the classic mistake of not realising why he had bought into the silver market, forgetting that like gold it is a store of value. Hommel also suggests the precious metals are entering a sustained period of higher prices, so he urges investors not to make the same mistake as Buffett by getting out too early.