DUBAI, 29 March 2006 — Dubai launched the Middle East’s first silver futures contracts yesterday, in the hope that growing investor demand for the metal will help power the Gulf emirate’s drive to become a global commodities trading hub.
The Dubai Metals and Commodities Exchange’s July delivery contract debuted at $10.95 per ounce as global silver prices touched 22-year highs, driven by expectations that a proposed US exchange-traded fund would spur demand. Since the exchange opened in November, gold futures and volumes have increased rapidly, buoyed partly by the physical gold trade centered in Dubai.
“Traditionally, silver has been more volatile than gold, which is great for people who want to move in and out of the market to make money. That will be the main driver of the growth in Dubai,” said V. Sivaramakrishnan of KomBench.
Jignesh Shah, vice chairman of the exchange, also expected strong demand for the contracts. “Silver everywhere is on the upswing. The buzz about ETFs (exchange-traded funds), particularly in the West, is set to drive up investment,” he said. “This is a key part of our strategy.”
Hedge funds have been aggressively buying silver in the last two weeks as the US Securities and Exchange Commission paves the way for final approval of the first exchange-traded fund that tracks the metal’s price.
In Europe silver opened at $10.90/93 per ounce yesterday. Prices hit $10.92 in New York trade on Monday, its highest since September 1983. By 0850 GMT, the July contract was trading at $10.945 per ounce, down slightly from the opening price. The September contract debuted at $10.97 and rose to $11.02.
The exchange will trade silver in 1,000-ounce lots and says it decided on smaller lots than the standard New York contracts of 5,000 ounces to meet demand from local merchants who hope to use the exchange for hedging.
The exchange’s 13-hour trading day, spanning the gap in business hours between Tokyo and London, encourages arbitrage plays.
While investor demand has helped drive silver prices up 20 percent in 2006, the physical market is expected to remain in deficit for the next two years as industrial and consumer demand outpace supply, estimated around 20,000 tons this year. The exchange will launch the Middle East’s first currency futures this year and hopes to start trading euro-dollar, yen-dollar and sterling-dollar contracts in May. Other contracts in the works include steel and fuel oil futures.