Precious metals exchange traded funds have surged this year as market volatility triggered safe-haven demand. However, silver has been lagging gold in the recent upturn.
Year-to-date, the iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) rose over 8.0%.
In contrast, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) increased over 17.0% so far this year.
Over the past decade, the two precious metals have exhibited a tight correlation of 0.81, with a daily move in gold typically being amplified by 45% for silver, reports Alex Rosenberg for CNBC.
While silver may have outperformed gold during rallies in the past, silver is falling behind this time around. Gold increased 17% in 2016 and 10% in the past month along, with Comex gold futures trading around $1,260 per ounce.
On the other hand, silver gained 8% this year and 5% in the past month month, with Comex silver futures at $15.2 per ounce.
“Considering how highly correlated silver is to gold, I find it interesting to see such a divergence over the last two to three weeks,” Cowen head of equity sales trading David Seaburg told CNBC. “Actually, it’s the first time I have ever seen a gap like this.”
Some bullion observers argue that silver’s semi-industrial attribute is partially to blame for the underperformance. While silver is a precious metal that helps provide a safe store of wealth, the asset is also widely used in industrial applications. For instance, silver is used in electronics, batteries, bearings, chemical catalysts, brazing and smoldering and automotive industry, according to The Silver Institute.
Consequently, a slowing global economy and weakening industrial environment, notably in China, has weighed on industrial demand for metals.
“Silver is a funky commodity,” longtime commodities trader Andy Hecht told CNBC. “Recently it’s been wearing its industrial hat rather than its precious hat, but that could change.”
However, with the economy picking up, precious metals traders may see silver pull back ahead.
“Historically, we are in an area of gold outperformance over silver that is not sustainable,” Larry McDonald, a macro strategist and editor of The Bear Traps Report, told CNBC. “We’re at extremely, extremely lofty levels in terms of outperformance, and I think the risk/reward is much better here to be long silver and short gold over the near term.”
iShares Silver Trust
Max Chen contributed to this article.