According to market analysts, silver prices have jumped 109% from their 2008 nadir, outshining gold by 26.9% on an annual basis, as stated in CommodityOnline. Analysts are bearish for silver in the immediate short-term, but bullish for the long-term. (Why silver is outperforming).

The high gains in silver are mostly attributed to several things: strong investor demand, industrial demand and China’s appetite for the metal. (What China’s demand means).

Adding silver to an investment portfolio increases the degree of diversification and protects against fluctuations in other asset types, according to silverpa. Other beneficial factors include:

• Economics. Silver and other precious metals have a lower correlation with most common financial assets. This independent movement helps reduce overall portfolio volatility.
• U.S. dollar. Silver provides a “hedge against inflation” and history has shown that it provides a worthwhile hedge as the dollar continues to depreciate.
• Asset allocation. Experts suggest a 10% to 15% allocation of precious metals in one’s portfolio.
• Investing. Buying the physical bullion is appealing, but an investor may also consider the ease of silver ETF trading. If it’s a futures-based ETF, futures contract rolling is handled for you; if it’s physically backed, you don’t have to worry about storage.
• Low price. Silver bullion is relatively inexpensive and it is an asset that is internationally recognized. It’s not known as “the poor man’s gold” for nothing.
• Industrial demand. Industries like imaging, electronics, jewelry, coinage, superconductivity and water purification all utilize silver. Silver is a precious metal, a store of value, a piece for art and an industrial metal. (The duality of silver).

For more information on silver, visit our silver category.

• ETFS Physical Silver Shares (NYSEArca: SIVR): up 24% since inception



• iShares Silver Trust (NYSEArca: SLV): up 51.8% year-to-date



• PowerShares DB Silver (NYSEArca: DBS): up 50.8% year-to-date

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

Max Chen contributed to this article.

As the commodity market sets up to appeal to investors, there are certain areas of the market to focus in on.

According to Lee Lowell for Investment U, these are three areas poised to move:

Gold. Gold is one area that has not disappointed. Gold has regained the elusive $1,000 per ounce and has motored to all-time highs of more than $1,060 per ounce. The U.S. dollar remains weak, giving weight to the argument that gold still has some shine left yet. Some analysts are even calling for the $2,000 per ounce mark. (What you can do if there’s a bubble).

• SPDR Gold Shares (NYSEArca: GLD): up 16.4% year-to-date

Silver. Silver has rallied back to the $18 per ounce area – a new high for the year, but still $4 per ounce below its all-time high of $22 from February 2008. That being said, it has handily outperformed gold this year. If gold continues to move, silver should follow. Because the silver market is smaller than gold’s, it can be volatile, so watch the trend lines and pay attention to the 200-day moving average. (Can silver benefit from inflationary pressures?)

• iShares Silver Trust (NYSEArca: SLV): up 41.6% year-to-date

The colder winter months lie ahead, making the case for natural gas stronger. Natural gas has finally moved off the lows it has logged since the highs of 2008. After bottoming in price just a few weeks ago, natural gas has rallied back up to levels last seen in early August. Bulls and bears are duking it out, though: the large amount of reserves in natural gas are re-enforcing the bears case for a pullback in this commodity. Bulls think winter will eat up those reserves. (A tale of two natural gas ETFs).

• United States Natural Gas (NYSEArca: UNG): down 55.3% year-to-date

For more stories about commodities, visit our commodity ETF category.

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

It’s not just a weak dollar and inflationary concerns that are driving up the price of gold.  Eric Hommelberg of Gold Seek states that gold had another trigger: as the Gulf states, China, Russia, Japan and France began to talk about ending dollar dealings for oil, “all heck broke loose.” Any new basket of currencies, Hommelberg says, will likely include gold. This sparked a buying spree. (Is the rally overheated?)

Hommelberg also states that a weak economy facing an uphill recovery battle is making gold attractive.

As impressive as gold’s price run has been, consider silver, which has been outperforming gold this year. Silver – the “poor man’s gold” – is also a good way to hedge against inflation, and it benefits from its appeal as both an industrial and precious metal. This means that it can be treated as a safe haven investment, as well as an investment for investors looking to benefit from an uptick in industrial demand. A note of caution:  since silver’s market is smaller than gold’s, it can be more volatile. (More on gold, platinum and silver).

For more stories on precious metals, visit our precious metals category. For a list of all the precious metal ETF options, go here.

A good and easy way to play gold is through the SPDR Gold Trust (NYSEArca: GLD) which is up 19.9% year-to-date.

As for silver, an easy way to access the market is through the iShares Silver Trust (NYSEArca: SLV) which is up 55% year-to-date.

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

Kevin Grewal contributed to this article.

Investment sage Jim Rogers has exhibited his perspicacious judgment in the marketplace and identified three prominent secular trends: America’s diminishing economic prowess, emerging Chinese power and increased emerging market demand for commodities, writes John Curran for Time Magazine.

Rogers believes that the current bullish commodity cycle started 11 years ago and says that commodity bull markets usually last 18 to 20 years. He is currently more interested in the potential of gold and particularly silver. (Go here for the rundown on  commodity ETFs).

• SPDR Gold Shares (NYSEArca: GLD): up 20.4% year-to-date
• iShares Silver Trust (NYSEArca: SLV): up 56.8% year-to-date

Heather Bell for IndexUniverse offers some noteworthy tidbits from Jim Rogers’ recent speech at ETF Securities‘ mini-conference and Q&A.

China. The Chinese want to live like us and they are eager to work for it. They save more and the U.S. owes them a lot of money. According to Rogers, the Chinese are “among the best capitalists in the world.” The only foreseeable problem is with the country’s water supply, which China is actively correcting. (Read more stories on China here).

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 48.3% year-to-date

Ben Bernanke? Rogers is appalled by current governmental policies and holds the Federal Reserve chairman accountable for the devaluing of the dollar. In the mid- or long-term, the United States will be suffering from the effects of the wanton monetary policy.

U.S. dollar. People are selling the dollar and a possibly unsustainable bubble will occur, and we all know what happens to bubbles. (How to play a weak dollar).

• PowerShares DB Dollar Bearish (NYSEArca: UDN): up 7.7% year-to-date

Commodities. An increasing population is using up a finite amount of available commodities. Basic supply and demand should dictate the obvious. Rogers goes on to point out that war can result in an attempt to compete for diminishing resources, although war tends to drive up commodities prices.

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 8.6% for the year

U.S. government bonds. Rogers deems short-term bonds “okay,” but advises long-term bonds as unsound. (The issues of bond ETFs).

• iShares Lehman 7-10 Yr Treasury Bond Fund (NYSEArca: IEF): down 3.9% year-to-date; yields 3.7%

Max Chen contributed to this article.

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

According to David Nadiq for IndexUniverse, investors who are more inclined to invest in commodity ETFs have a choice in what type of ETF they use to get exposure:

Equities. Equity-based commodity ETFs are funds that hold mining companies and other companies involved in the production of various commodities. Be aware that the performance of these companies are not always correlated to their underlying commodity. In the case of coal, steel and other commodities, sometimes equity-based commodity ETFs are the only way to gain exposure to these assets in an ETF. Long-term capital gains rate on equity-based ETFs is 15%, but be sure to consult your tax professional for further guidance.

• SPDR S&P Metals & Mining (NYSEArca: XME): up 73.4% year-to-date

Physical. Physical ETFs hold the actual physical commodity. Precious metals ETF holders would own an interest in a fractional amount of the physical commodity. The small investor may consider physical ETFs over holding the physical commodity because of costs associated with storage of the commodity. Potential investors should also note that profits in bullion-based ETFs are taxed at 28%, but consult your tax professional for advice.

• iShares Silver Trust (NYSEArca: SLV): up 56.1% year-to-date

Futures-based. Most commodities are traded on futures exchanges. A future is a promise to buy, or sell, a commodity for a set price at a set date in the near future. A majority of the future contracts traded on the exchange floor are settled or swapped for cash before the expiration date.

Futures also add a time component to the price: when tomorrow’s cost is higher than today’s, it’s called contango; the inverse called backwardation. Investors should note that some ETFs have blind front-month roll strategies, but most ETFs now buy futures months in advance. None of these ETFs claim to deliver the spot price of the underlying commodity.

Futures-based ETFs are usually reported on K-1 tax forms. The profits are taxed at 60% long-term and 40% short-term capital gains rate. Read more about how ETFs are taxed here, and always consult your tax professional for advice.

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 8.1% for the year

Swaps-based. Swaps recently entered the ETF conversation when the popular United States Natural Gas (NYSEArca: UNG) turned to them in order to gain exposure. Generally, ETFs that invest in swaps receive the benchmark performance through the swap. The use of swaps give investors exposure to areas of the market that can be difficult to target. Read more about the benefits of swaps here. When the Commodity Futures Trading Commission (CFTC) announces regulatory changes, swaps could become a part of even more futures-based ETFs.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

There are many reasons to buy into a precious metals investment, and ETFs can give the desired  exposure to gold, silver and platinum.

Gold. Gold is the godfather of all the precious metals for various reasons, according to Aryeh Katz for Investopedia:

• Gold is a safe haven and is recognized by almost all governments as being a safe store of value
• Inflationary pressures can be hedged with gold (read more on fighting inflation with ETFs here)
• War and political upheaval have always sent people into gold-hoarding mode; an entire lifetime’s worth of savings can be made portable and stored until it’s needed

Moming Zhou for MarketWatch reports that Jim Rogers recently claimed gold will hit $2,000 per troy ounce within the decade. As long as the U.S. dollar continues to weaken, gold prices could continue to rise because gold priced in dollars will become cheaper for overseas buyers (Read 7 more things you should know about gold here).

• SPDR Gold Trust (NYSEArca: GLD)
• iShares COMEX Gold Trust (NYSEArca: IAU)
• PowerShares DB Gold (NYSEArca: DGL)
• ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)
• Market Vectors Gold Miners (NYSEArca: GDX)
• E-TRACS UBS Bloomberg CMCI Gold ETN (NYSEArca: UBG)

Silver. Silver – the “poor man’s gold” – is also a good way to hedge against inflation, and it benefits from its appeal as both an industrial and precious metal. This means that it can be treated as a safe haven investment, as well as an investment for investors looking to benefit from an uptick in industrial demand. A note of caution:  since silver’s market is smaller than gold’s, it can be more volatile. Silver’s main investment approach is determined by factors such as:

• Silver’s role in photography and film has kept demand high; however, the advent of digital cameras has dented the need for silver
• Middle class population growth in emerging markets is great, and this demand for industrial and electrical supplies puts much more pressure on the silver store
• Silver’s use in batteries, superconductor applications and microcircuit markets is a major source of demand
  

• ETFS Physical Silver Shares (NYSEArca:SIVR)
• iShares Silver Trust (NYSEArca: SLV)
  
• PowerShares DB Silver (NYSEArca: DBS)
• E-TRACS UBS Bloomberg CMCI Silver (NYSEArca: USV)
  

Platinum. Platinum tends to fetch a higher price than gold during routine periods of market and political stability simply because it’s much rarer. Other factors affecting platinums price include:

• The greatest demand for platinum comes from automotive catalysts, which are used to reduce emissions; after this, jewelry accounts for the majority of demand
• Auto sales and production numbers are also determinants of platinum’s price
• Platinum mines are heavily concentrated in two countries: South Africa and Russia; This places much more pressure on the platinum market.

Jeff Nielson for DNA reports that the direction of the precious metals markets are not easy to determine in the short term. The longer the time horizon (and the larger the data stream), the more predictable are the movements of companies, commodities, and overall markets.

Various ETFs that give exposure to precious metals:

• E-TRACS UBS Long Platinum ETN (NYSEArca: PTM)
• iPath Dow Jones AIG Platinum TRSub Index (NYSEArca: PGM)

In addition to specific exposure to metals ETFs, investors can also find broad metal ETFs that hold either the metals themselves, futures contracts or the stock of companies involved in the production of these metals:

• PowerShares Global Gold & Precious Metals (NYSEArca: PSAU)
• SPDR S&P Metals & Mining (NYSEArca: XME)
  
• Emerging Global Shares DJ Emerging Markets Metals & Mining Titans (NYSEArca: EMT)
• PowerShares DB Precious Metals (NYSEArca: DBP)
• iPath Dow Jones AIG Precious Metals TR Sub Index (NYSEArca: JJP)
  

For more stories about precious metals, visit our precious metals category.

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

This week, precious metals did well because of a decline in the U.S. dollar and rising oil prices.

Melissa Pistilli for Silver Investing News reports that certain factors such as inflation, the pace of the global recovery and a return to the levels of growth in commodities demand that the world experienced prior to last year’s crash will impact the way silver is approached and marketed to investors. (More about silver can be found here).

Silver has a dual personality- it can be treated as a precious metal or an industrial metal. Here are some points about both approaches:

• Silver tends to rise as gold prices rise, particularly when gold is used as a safe haven. It holds monetary status and its low price relative to gold makes it much easier to acquire.
• Industrial demand can make silver more volatile than gold, which is why it tends to outperform gold in good periods but decline more sharply in bad ones.
• Some believe that silver’s price actions over the last year are mostly because of its precious metal properties, which serve it well when inflation fears are high and the dollar is weak.
• Silver is the best electrical conductor, the most reflective metal and the second-most malleable of all metals, and more patents have silver as a component than any other metal.
• Another factor to consider in supply and demand fundamentals is that above-ground silver supply levels were affected by the economic downturn as cash-strapped mining companies cut exploration, development and production operations.

For now , silver has enough support with the safe-haven appeal. For the silver market to sustain price levels above the $16 to $17 range, however, analysts say that we’ll need to see a rise in industrial demand.

• ETFS Physical Silver Shares (NYSEArca: SIVR): up 27.8% since inception



• iShares Silver Trust (NYSEArca: SLV): up 56.4% year-to-date



• PowerShares DB Silver (NYSEArca: DBS): up 55.8% year-to-date

For more stories about silver, visit our silver category.

Silver has experienced a bull market of its own, standing in the shadow of the $1,038 per ounce in gold. Jeff P. Opdyke for The Wall Street Journal reports that the metal is up 44% this year, recently topping $17 a troy ounce.

Why do investors have a taste for gold and leave silver glistening quietly behind? The answer is not simple, but silver has two sides that appeal to investors.

• It’s a precious metal accumulated by investors and central banks as a quasi-currency.
• It’s an industrial metal with an increasing number of applications in health care, electronics and even food and clothing.

Which side of silver really shines? Silver’s precious-metal characteristics are driving prices at the moment. As inflation anxiety mounts and the health of the U.S. dollar is doubted, investors and speculators look to the metals as a hedge to a weak currency.

As investor demand wanes, though, prices may fall sharply because silver’s market is a much smaller one. Industrial demand won’t grow fast enough to supplant investment demand. Have a stop loss in place to protect yourself when the trend reverses itself.

Related ETFs:

• ETFS Physical Silver Shares (NYSEArca: SIVR): up 19.5% since inception

• iShares Silver Trust (NYSEArca: SLV): up 46.3% year-to-date

• PowerShares DB Silver (NYSEArca: DBS): up 45.4% year-to-date

For more stories about silver, visit our silver category.

In the short-term, the fourth quarter could be volatile for gold prices, and some analysts believe gold will be vulnerable to pullbacks if the dollar appreciates or liquidation occurs, writes Melinda Peer for Forbes. But physically-backed ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), are currently picking up on weaker dollar expectations.

ETF Securities is expanding its physically-backed investment products and recently launched ETFS SIVER TRUST (NYSEArca: SIVR) and ETFS GOLD TRUST (NYSEArca: SGOL). Both funds are 100% backed by the physical assets held in London and Switzerland, respectively.

Meanwhile, potential regulations coming forth from the Commodity Futures Trading Commission (CFTC) has some funds doing a little shuffling.

PowerShares is restructuring its funds in an attempt to take advantage of loopholes to meet the “safety position limits,” remarks Don Dion for TheStreet. The ETFs PowerShares DB Agriculture (NYSEArca: DBA) and PowerShares DB Commodity Index Tracking (NYSEArca: DBC) will reduce positions in corn and wheat futures by the end of October.

DBA and DBC invest in commodities futures to achieve their intended tracking strategies. In addition to reducing their current positions, DB will take positions in coffee, cocoa, live cattle, copper, natural gas and gasoline. This will allow the fund to continue to operate within limits.

DBC will start investing in oil futures contract traded in Europe – a loophole that allows the fund to reduce U.S. oil holdings while adding foreign holdings.

Managers of United States Natural Gas (NYSEArca: UNG) have already cut back on natural gas futures contracts listed in the United States in favor of swaps elsewhere.

The CFTC has noted its intent on increasing position limits placed on future-based commodity ETFs. ETF managers have already stoped creation of new shares, shut down funds and restructured underlying investment strategies.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

Hard-asset ETFs can be used to both diversify a portfolio as well as protection from both inflation and broader market turmoil, comments Don Dion for TheStreet.

Some hard asset ETFs don’t hold futures or physical commodities. Instead, these funds track indexes made up of the stock of commodity producers. Some broad equity-based, hard-asset ETFs include:

• SPDR S&P Metals & Mining (NYSEArca: XME), currently up 66.8% year-to-date, includes U.S. metals and mining companies. The fund has an expense ratio of 0.35%.
• Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP), currently up 29.9% year-to-date, this fund seeks to reflect the Rogers-Van Eck Hard Assets Producers Index, which is often quoted as the definitive commodity equities benchmark. HAP also holds water and renewable energy components in its portfolio.

iPath offers both broad and specific exposure to hard assets with a line of exchange traded notes (ETNs) that track the futures contracts and Treasuries. Potential investors in these ETNs should be aware of regulatory actions that the Commodity Futures Trading Commission (CFTC) may impose.

• iPath DJ AIG Ind Metals TR Sub-Idx ETN (NYSEArca: JJM): up 45.6% year-to-date; includes a basket of commodities.
• iPath DJ AIG Tin TR Sub-Idx ETN (NYSEArca: JJT): up 42.3% year-to-date
• iPath DJ AIG Platinum TR Sub-Idx ETN (NYSEArca: PGM): up 32.5% year-to-date
• iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD): up 114.7% year-to-date
• iPath DJ AIG Aluminum TR Sub-Idx ETN (NYSEArca: JJU): up 10.5% year-to-date

ETF Securities has successfully launched global physical-asset ETFs:

• ETFS Silver Trust (NYSEArca: SIVR): up 9.8% in the last month
• ETFS Gold Trust (NYSEArca: SGOL): down 1.3% in the last week

Larry Swedroe, principal and director at Research at BAM advisor Services and at Research for Buckingham Family of Financial Services, says that purchasing commodities is a way to protect against supply shocks and event risks that could negatively influence a portfolio of stocks and bonds, according to iStockAnalyst.

Swedroe also argues that position limits on commodity ETFs are “purely politically driven,” which could create conditions of more volatility. The ultimate outcome, he says, will result in the value of contracts being driven higher and people having to pay more for insurance.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.