The iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) are each down about 11.7% this year, showings that are far worse than the 10% lost by the SPDR Gold Shares (NYSEArca: GLD).
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. That means heading into 2016 silver ETF investors face a confounding set of circumstances.
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.
“We believe that price expectations for gold and silver are too bullish,” says Robin Bhar at French investment and bullion bank Societe Generale, writing about the recent London Bullion Market Association’s precious metals conference in Vienna, and the LBMA attendees’ average price forecasts of $1159 and $18 per ounce for gold and silver one year from now,” reports Bullion Vault.
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 selling pressure.
“The direction of silver will continue to be dictated by the direction of long term interest rates and U.S. dollar (among other things that silver investors look for when investing in the precious metal). But what about the changes in the physical demand and supply for silver? After all, the ongoing low silver prices contributed to the decline in silver production this year – perhaps 2015 will be the first year since in well over a decade, in which production won’t rise,” according to a Seeking Alpha analysis.
In the more mainstream demand side, silver jewelry demand is still rising due to increased consumption among emerging markets, notably in China where we are seeing a rising middle class with increased discretionary money.
On the supply side, silver miners are finding less deposits and producers are expanding into new projects, which suggests that silver could be in shorter supply ahead. [Silver ETFs on the Mend]
iShares Silver Trust
