Silver’s Second-Half Potential

Silver’s Second-Half Potential

Silver exchange traded funds struggled through much of the second quarter, but on the back of a rally in gold and other catalysts, the iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) rallied late in the quarter and appear poised to impress in the second half of the year.

SLV and SIVR each gained more than 11% last month. A recent decline in silver volatility was a tell that the white metal was on the cusp of a rally. In May when the gold/silver ratio was residing at its highest levels since 2010, silver volatility was spotted near its lowest levels in a decade, indicating limited downside risk. [Silver ETFs Regain Lost Shine]

“Until a few weeks ago the silver price was down on the year. Characteristic of this often volatile metal, it has caught up rapidly. Strong demand on the back of increasing global PMI’s and solid investor interest, combined with declining supply due to slack recycling and historically low inventories should continue to support silver in H2 in our view,” said ETF Securities in a new research note.

Data from ETF Securities indicate silver volatility remains near its lowest levels in a year. Low volatility for the white metal has encouraged investors to step into silver ETFs with holdings in such funds residing near one-year highs, according to ETF Securities data.

Until recently, gold ETFs had struggled to attract and retain assets this year, but SLV and SIVR have pulled in a combined $80.5 million this year, though some investors have recently departed silver ETFs.

“Silver volatility is just recovering from the lowest levels reached in over a decade, indicating a strong foundation for an extended recovery. The August 2013 high, just above US $24/oz., is a good area to expect good resistance. The gold vs silver ratio has backed away from near the 70 area and appears poised to revisit near 50,” said ETF Securities.