The iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) are already among this year’s best-performing precious metals exchange traded funds, but some market observers see the good times continuing for silver and the related ETFs.
Silver and other precious metals enjoyed safe-haven demand as the equities market plunged into a correction. 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.
Bolstering the appeal for silver, the precious metal enjoys heavy industrial demand that benefits from an expanding global economy. Over 50% of global demand for silver comes from industries like chemicals, medicine and technological appliances.
Along with SLV, investors interested in increasing their exposure to silver may look to a number of related ETFs, including PowerShares DB Silver Fund (NYSEArca: DBS).
“The rally in silver prices over the past few sessions has been impressive, so much so it pushed one of our favorite momentum measures into unusually high territory. The other day we noted that this skewed the bias to the upside in the short-term, but choppy trading conditions could begin to prevail as the market becomes in need of a rest (pullback),” according to DailyFX.[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%.
DBS, on the other hand, tracks silver futures contracts. Specifically, the ETF includes silver contracts that expire on January 27, 2017. Consequently, potential investors should be aware that the fund may come with a K-1 tax form. Additionally, since the ETF includes futures contracts, investors are susceptible to the effects of contango or backwardation in the futures market.
“The extreme market positioning previously discussed in the futures market has been correcting itself, and while speculative longs are still holding quite a large net long position, it’s not much larger than the one held prior to the April rally,” according to DailyFX.
For more information on the silver market, visit our silver category.
iShares Silver Trust
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.