The strengthening U.S. dollar and greater likelihood of a Federal Reserve interest rate hike are tarnishing silver bullion-related exchange traded funds, with the precious metal trading at a six-year low.
The iShares Silver Trust (NYSEArca: SLV) dipped 0.7% Wednesday and was trading near its lowest level since June 2009. SLV declined 9.0% over the past month and fell 8.6% year-to-date.
Comex silver futures dropped 0.6% Wednesday to $14.3 per ounce, nearing its $14 per ounce August 2009 low.
Silver has has experienced back-to-back selling since the October Federal Open Market Committee announcement, which pointed to a December rate hike, and the strong October jobs report, which also fueled the case for tighter monetary policies.
Technical investors, though, may argue that silver could bounce back over the short-term as the relative strength index, a technical momentum indicator, suggests that SLV is oversold after the consecutive selling pressure.
However, looking farther out, Bank of America Merrill Lynch commodity analysts reveal that their models indicate silver could fall to as low as $12 “in the coming weeks,” reports Jamie Chisholm for the Financial Times.
Weighing on the silver outlook, the looming Fed rate hike and stronger dollar will hurt precious metals.
“The combination of a strong dollar and rising real rates is also having a predictable effect on precious metals prices,” Russ Koesterich, Global Chief Investment Strategist and Head of Model Portfolio & Solutions Business at BlackRock, said. “The simultaneous rise in real and nominal rates reflects the fact that inflation is contained, and that puts downward pressure on the price of precious metals (since they are viewed as an inflation hedge, but provide no income, they consequently become less attractive).”
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. Over the past month, DSLV surged 29.2% and ZSL jumped 19.5%.
iShares Silver Trust
For more information on the silver market, visit our silver category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.