Gold ETFs have corrected hard in 2013 after hitting multi-year highs. Nevertheless, gold has not had it as bad as silver and related exchange traded funds.
The iShares Silver Trust (NYSEArca: SLV) has dropped 29.0% year-to-date, whereas the SPDR Gold Shares (NYSEArca: GLD) has declined 17.7%.
“This is largely because silver, unlike gold, swings between dual roles as a useful industrial metal and safe-haven asset,” according to Morningstar analyst Alex Bryan. “Most of the time, industrial demand drives silver prices. However, during times of market dislocation, high inflation expectations, or economic uncertainty, investment demand for silver becomes the main price driver.”
The dislocation between silver and gold has become more pronounced on speculation that the Federal Reserve will start cutting back its quantitative easing programs in light of the improving economic conditions.
Investment demand for silver has risen over the past few years. According to Silver Seek, investment demand for silver rose to 250 million ounces in 2012 from 100 million in 2005. In 2007, total global silver investment was $500 million, and by 2012, investment demand was valued at around $8 billion.
On the industrial demand side, silver is utilized most heavily in automotive, consumer electronics, chemical and solar sectors.