The iShares Silver Trust ETF (NYSEArca: SLV) and the ETFS Physical Silver Shares ETF (NYSEArca: SIVR) are each up about 23% year-to-date clearly making the duo two of the best-performing precious metals exchange traded funds this year.
An alternative view is that betting against silver ETFs and betting on an inverse product such as the ProShares UltraShort Silver ETF (NYSEArca: ZSL) has been hazardous to a portfolio’s health.
Silver and other precious metals enjoyed safe-haven demand as the equities market plunged into a correction.
Related: 11 Silver ETFs Outshining the Competition
The metal also maintained its momentum as the Federal Reserve lowered its interest rate outlook to only two hikes this year from a previously expected four rate hikes. Additionally, with the dovish Fed stance, the U.S. dollar weakened, which made USD-denominated silver cheaper for foreign buyers and a better store of value for U.S. investors.
Bottom line: A dithering Fed and a weak dollar have put the wind at the backs of precious metals ETFs like SLV and SIVR, making it difficult to bet on a fund like ZSL. At the very least, being bearish silver at the moment is a bold call, but some market observers are willing to make that call.
“ZSL at this time offers a potential superior price gain supported by similar prior forecast returns with price drawdowns at their worst of only -5%. Comparable statistics on the best-ranked 20 of our population of 2602 stocks and ETFs are not even as good, although ZSL is among the 20,” according to a Seeking Alpha analysis of ZSL.
[related_stories]Both SLV and SIVR are bullion-backed silver ETFs – the funds’ shares represent a physical holding in silver bars stored in London, U.K. bank vaults. Potential investors should be aware that physically backed ETFs are taxed as collectibles at a rate of 28% instead of long-term equity rate of 15%.
Silver bullion prices are affected by a weakening U.S., and the global silver ETFs also enjoy the positive forex effects of a depreciating greenback – a strengthening foreign currency means that returns are augmented when converted to a weaker U.S. dollar.
Related: Pros Prep for a Silver Pullback That Might not Materialize
However, potential investors should be aware that a strengthening dollar could contribute to a significant pullback in both precious metals and related miner assets.
“You don’t need to speculate over supply and demand for silver as a commodity. The well-informed, educated, and highly-paid staffs at the MM firms have already done that, and their expectations are baked into the hedging deals agreed on by experienced pros, vetted by competition in sophisticated, active markets,” adds Seeking Alpha.
For more news and strategy on the Currency ETF market, visit our Silver category.
ProShares UltraShort Silver ETF
