Among precious metals exchange traded funds, the SPDR Gold Shares (NYSEArca: GLD) and its rivals are getting most of the attention this year. That makes sense as GLD is packing on assets on its way to a year-to-date gain of 15.4%.
Gold’s surge is overshadowing a resurgence among silver ETFs, but some market observers believe the silver rally has plenty of gas left in its tank. The iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) are each up nearly 10% this year.
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.
“Many analysts compare the price of gold with the price of silver to get a handle on relative value. The gold/silver ratio is currently near 80, which is close to a seven-year high. Compare this with its historical average, near 60, calculated from the start of the precious metals bull market in 2001. That suggests the ratio is stretched too far to the upside and more likely to move lower than higher. Of course, that does not guarantee that the reversal will begin immediately, but it does tell us about the environment for both metals,” reports Michael Kahn for Barron’s.[related_stories]
Investors have been nibbling at silver ETFs, but that is all it has been: A nibble. SLV has $138 million in new assets while GLD’s inflows are north of $5.1 billion.
However, a cooperative Federal Reserve could boost interest in gold and silver ETFs. Precious metals benefit from lower interest rates and with bets dwindling that the Fed will raise rates soon, SLV and SIVR could see added upside.
iShares Silver Trust
Tom Lydon’s clients own shares of GLD.
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.