Silver exchange traded funds are up 20% this year to outperform gold prices. While often overshadowed by gold’s historic rise, silver and related ETFs provide traders with an alternative, and cheaper, precious metal investment option.
Silver, like most commodities, has shown relatively low correlation with the stock and bond markets, making the asset a great portfolio diversifier. The precious metal is also viewed as a safe-haven asset, like gold. However, silver’s safe-haven status is slightly diluted due to its industrial applications and therefore connection with the global economy. [Poor Man’s Gold: Silver ETFs Shine]
“Whereas investment demand for gold makes up nearly 40% of total demand, investment demand for silver constitutes only 17%,” according to Morninstar analyst Abraham Bailin. “Industrial applications for silver constitute over 46% of the total, while that figure falls to roughly 12% for gold.”
Silver futures are trading above $33 an ounce after topping out around $50 last year.
Loose monetary policies from central banks provide a strong supporting argument for precious metals. The long-term inflationary impact could boost silver’s appeal as a store of value.
“Silver can retain its purchasing power under strong inflationary pressure,” Bailin added. “On the other hand, increased dollar strength can detract from silver’s value as investors are able to buy more metal with each bill.”