Silver and its exchange traded fund (ETF) were among the strongest performers in the first quarter of this year, outperforming most other metal-focused ETFs.

iShares Silver Trust (SLV) finished up the first quarter 12.3% higher. streetTRACKS Gold Shares (GLD), on the other hand, rose 6.5%. Year-to-date, SLV has continued making strides and is up 13.5%. GLD is up 5.8% year-to-date.

Until April 2006, investors only had a handful of ways to get silver exposure, says Don Dion for Seeking Alpha. They could buy the metal themselves, purchase futures contracts, hold stocks in companies with direct exposure to silver companies or invest in funds focused on those companies.

SLV simplifies the equation: by buying a share, you are buying a stake in a cache of silver bullion stored at the London branch of JPMorgan Chase. The price of each share should reflect the current price of 10 ounces of silver, less the 0.5% operating expense of the fund.

The fund’s method seems popular, says Dion. So much that it’s actually considered to be partially responsible for the steep price increase of silver since the fund’s inception.

Sonya Morris at Morningstar says investors would be better off using SLV as a tool of portfolio diversification rather than a hedge against inflation. Silver has industrial uses that make its price prone to volatility as the economy moves back and forth.

The question now is: can silver keep marching forward, or is the precious metals area due for a correction?

What’s next? If inflation continues to loom and global industrial demand continues, the rally could be just getting started. But if the dollar keeps strengthening and the United States crawls out of the doldrums, precious metals might retreat.

For full disclosure, some of Tom Lydon’s clients own shares of GLD.

Tags | GLD, Material ETFs, Metals, Silver