Silver Miners ETFs Take Gold Medal in Mining Rally
June 19th, 2014 at 1:15pm by Todd Shriber
With gold futures up 2.3% and over $1,300 per troy ounce today, gold exchange traded funds, both the physically-backed and equity-based varieties, are garnering plenty of attention.
However, silver ETFs are not playing second fiddle to gold funds. The iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) are up 4.6% and 4.8%, respectively, compared to a 3% for the SPDR Gold Shares (NYSEArca: GLD). Volume in SLV and SIVR is already more than double the daily averages for both ETFs. [Silver ETFs Ready to Rise]
Silver miners ETFs are acting as leveraged proxies for the white metal. While plenty of active traders have embraced leveraged mining ETFs, such as the Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT), there are no silver equivalents of those ETFs. [Miners ETFs Poised to Party]
The PureFunds ISE Junior Silver ETF (NYSEArca: SILJ) is proving traders do not need a leveraged silver miners ETF because, when silver futures rally, SILJ’s corresponding moves are usually heftier and more profitable.
SILJ is up 8.4% today on volume that is nearly twice the daily average. Entering Thursday’s session, SILJ was sitting on a June gain of 23%. Said another way, if SILJ finishes higher by 8% today, the ETF will be up 31% in just 14 June trading days.
Silver’s move to the $20 per ounce area should prove beneficial for SILJ and rival silver miners ETFs because many silver industry observers believe $20 is the breakeven cost for many miners.
“If companies sell a lot of silver below this price, they may incur large losses on every ounce mined. In doing so, they are essentially selling off their assets at a loss. What rational company would continue to sell their assets at a loss? In an “underwater” environment for silver, it may make more sense to stop mining activities until the price rises back above their break even cost,” notes PureFunds.
The response to silver flirting with $20 per ounce and SLV trading at its highest levels since March is palpable. SILJ is Thursday’s top-performing non-leveraged ETF. The Global X Silvers Miners ETF (NYSEARca: SIL) and the iShares MSCI Global Silver Miners ETF (NYSEArca: SLVP) are the third- and fourth-best ETFs to this point in the day.
With Thursday’s gains, SIL is up 22.3% this month while SLVP is higher by 17.3%.
“With less future silver production in the pipeline, if demand was to continue or increase, the potential upside to silver price due to a supply crunch becomes even stronger. We cannot pretend to know the true reason silver prices have been below this important all-in cost level for so long, but we do know that commodities cannot be sold below the cost of production forever,” added PureFunds. [Small Silver ETFs Grows Up]
PureFunds ISE Junior Silver Small Cap Miners/Explorers ETF
Tom Lydon’s clients own shares of GLD, JNUG and SLV.