Investors have previously turned to silver exchange traded funds as an asset with a safe store of value and as a metal with wide industrial application in a growing economy. However, the precious metal is now suffering from a bad turn on both fronts.
Over the past year, the iShares Silver Trust (NYSEArca: SLV) fell 26.8%, ETFS Physical Silver Shares (NYSEArca: SIVR) dropped 26.6% and PowerShares DB Silver Fund (NYSEArca: DBS) decreased 29.0%. In contrast, the SPDR Gold Shares (NYSEArca: GLD) dipped 16.1% over the past year.
Silver, like gold, is losing ground among investors seeking a hedge against market volatility or a store of value against inflationary pressures, reports Christian Berthelsen for the Wall Street Journal. Many market participants are anticipating the Federal Reserve to hike interest rates for the first time in almost a decade, which will diminish the attractiveness of holding assets with no yields.
“Silver can well be described as a hybrid metal—half precious, half industrial,” Bart Melek, head of commodity strategy at TD Securities, told the WSJ.
Additionally, unlike gold, silver is used in many industrial applications, but industrial demand is diminishing as global growth, notably China, begins to slow. Industrial demand for silver dipped 0.5% last year on lower demand from Europe and North America.
“Silver is getting whacked from both sides,” Ed Meir, a commodity analyst with brokerage INTL FCStone, told the WSJ.
COMEX silver futures have plunged 27% over the year and are now trading around $14.6 per ounce. Meanwhile, COMEX gold futures have declined 16% and are trading around $1,088.9 per ounce.
Looking ahead, Barclays analysts project silver prices will continue to decline 20% in the coming year. Bearish bets have already increased fivefold since May by one measure. For instance, David Miller, chief investment officer at Catalyst Mutual Funds, said he executed a $1.2 million bet against silver ETFs in recent weeks as the market fell.
Consequently, those who have a strong conviction that silver prices will continue to dip can utilize inverse silver ETF options to play the fall. More aggressive traders can take a look at the VelocityShares 3x Inverse Silver ETN (NYSEArca: DSLV), which takes the -300% performance of silver, and the ProShares UltraShort Silver (NYSEArca: ZSL), which takes the -200% performance of silver price movements.
iShares Silver Trust
For more information on the silver market, visit our silver category.
Max Chen contributed to this article.