Silver ETFs: More Than Just Poor Man's Gold | ETF Trends

One of the largest exchange traded funds (ETFs) in the world holds gold. But if you take a look at all the advantages that silver has to offer, you might find yourself wondering why gold gets all the attention.

It was around one year ago that ETF Securities launched the U.S. industry’s second physically backed silver ETF: ETFS Physical Silver Shares (NYSEArca: SIVR), and William Rhind, head of U.S. sales and marketing for ETF Securities, says there’s a huge case for silver today.

“A lot of people have been talking about silver very positively this year,” he says as he ticks off the many benefits:

  • It’s cheap compared to gold. Silver runs around$18 an ounce; gold is just under $1,200 an ounce. “There’s a massive diference in the price,” Rhind says. That leads some people to look at silver purely on a relative value basis, but it isn’t the only thing to consider.
  • Silver is a hybrid metal. Because it’s rare, it’s precious and it’s a store of money much like gold. It’s also similar to gold in that it’s one of the oldest forms of currency. It was first used by the Lydians around 700 BC.
  • Silver also has industrial applications. Unlike gold, Rhind says, silver is used a lot more in industry.

Some people might view silver as a poor man’s gold, but that might be shortchanging the metal a little. [Podcast: All About Metals ETFs.]

“What’s interesting about silver is that typically people view it as a leveraged play on gold,” he says. Although silver is highly correlated with gold, it tends to react with more force in either direction. When gold prices are rising, silver prices tend to rise faster. On the flip side, when gold prices decline, silver plummets more.

“It has higher volatility because of the industrial component,” Rhind says. Industry, in fact, is silver’s main source of demand, accounting for about 50% of the total. Jewelry accounts for 20% of demand, and investment makes up 8% of demand.

Rhind also points out that in the last five out of nine years (2001-2009), silver has had a greater rate of return than gold. Silver has delivered 17.6% annually on average. “That’s higher than gold in that time.” [5 Reasons for Silver ETFs’ Glow.]

The silver market is also relatively in balance, meaning that there’s as much demand as there is supply. Rhind says that’s a good thing – you don’t want a market that’s vastly oversupplied.