Investors who are thinking about a precious metal position may want to take a look at silver bullion and related exchange traded funds as an alternative to gold. However, the metals may face short-term risk in a rising rate environment.
Year-to-date, the iShares Silver Trust (NYSEArca: SLV) rose 1.3%, ETFS Physical Silver Shares (NYSEArca: SIVR) gained 1.7% and PowerShares DB Silver Fund (NYSEArca: DBS) increased returned 0.9%. In contrast, the SPDR Gold Shares (NYSEArca: GLD) dipped 0.3% so far this year. [Silver ETFs Outperform Other Precious Metals]
COMEX silver futures are now trading at about $16.1 per ounce.
Supporting the silver market’s outlook, demand is outpacing supply, silver bullion is trading at a relative discount with expectations for further gains, industrial demand is rising and the metal is outperforming gold so far this year, reports Myra P. Saefong for MarketWatch.
The physical silver market has been stuck in a global supply deficit over the past two years, according to the Silver Institute. Looking at the top five producers and consumers of silver, demand amounted to $8.9 billion in 2014, compared to supply of $7.1 billion.
Thomson Reuters also expects global supplies to run short of demand by 57.7 million ounces this year.
“With silver supply now in deficit relative to demand in three of the last four years, it appears the silver price has to rise,” Bradford Cooke, chief executive officer and director of Endeavour Silver Corp (NYSE: EXK), said in the MarketWatch article. “There is no new mine supply ready to be developed, yet industrial demand continues to grow.”
Silver has many industrial applications, including electronics, optics, biotechnologies and solar panels.
However, silver traders may have to contend with some headwinds ahead, notably the Federal Reserve interest rate hike.