Gold and silver exchange traded funds are rallying in the wake of the second bailout for Greece. Fears of additional currency debasement and more financial aid from central banks to stem Europe’s debt crisis could keep a bid under precious metal ETFs this year.
Gold ETFs rose nearly 2% on Tuesday while silver funds added about 3%. [List of Silver ETFs]
Silver is also leading the yellow metal so far in 2012. For example, iShares Silver Trust (NYSEArca: SLV) has gained 20% year to date, compared with a 10% rise for SPDR Gold Shares (NYSEArca: GLD).
Silver ETFs are more volatile than gold but could be poised to outperform on a combination of continued easing policies from central banks and an improving global economy, since silver has industrial uses. Some technical traders watch the gold/silver ratio to get a sense for how bullish investors are on precious metals overall.
Additionally, silver ETFs are trying to break above the 200-day simple moving average for the first time since September 2011.
Silver prices outperformed gold in 2010 and early 2011 as silver shot to $50 an ounce.
Conversely, gold held up much better than silver during the sharp sell-offs in the metals last year. However, the ratio has stabilized over the past six months with silver taking the lead so far in 2012.
Greg McCoach, publisher of The Mining Speculator, thinks gold and silver ETFs will hit new highs this year on more quantitative easing from central banks, with silver pushing toward $70 an ounce, ETF Daily News reports. Silver would have to double from current levels to hit the forecast as futures were trading over $34 an ounce on Tuesday.
Investment demand for silver has surged following the 2008 credit meltdown and unprecedented moves from central banks to support the economy and financial markets. “If anything, an analysis of the gold/silver ratio offers at least one definitive clue about the gold/silver relationship: traders can expect silver to make more exaggerated moves than gold,” MarketWatch reports. “Historically, the pace of silver’s rise has been greater than gold and the pace of silver’s price fall has also been greater than gold.”
iShares Silver Trust
Full disclosure: Tom Lydon’s clients own SLV and GLD.