With the iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) both up more than 42% this year, logic might tell us that professional investors are starting to bet against silver. However, recent data suggest the opposite is true.
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.
“Bullion has benefited as turbulence in financial markets after the Brexit vote added to speculation that central banks will step up stimulus, with interest rates in the U.S. set to remain low. Holdings in silver-backed exchange traded funds expanded to a record last month, and assets in gold ETFs are now at the highest since August 2013,” according to Bloomberg.[related_stories]
While investors have been pouring into some of the gold ETFs that rival SLV and SIVR, investors have also embraced the silver products as SLV and SIVR have added over $250 million in new assets this year, on a combined basis.
Moreover, the U.S. dollar, which typically has an inverse relationship with precious metals prices, declined Friday. The U.S. Dollar Index, which tracks the U.S. dollar’s movement against a group of major foreign currencies, dipped 0.2% to 95.7 – it was the dollar’s third decline in the past four days.
“Gold bought as few as 64.2 ounces of silver on Monday, the least since August 2014, after purchasing as much as 83.8 ounces in February, the most since the global financial crisis in 2008. Silver has jumped 47 percent this year, outpacing gold’s 27 percent advance. Funds have boosted their bullish positions in the two metals to the highest since the data began in 2006,” according to Bloomberg.
Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward precious metals as a more stable store of wealth.
Moreover, unlike gold, palladium, platinum and silver see much higher industrial demand. The precious metal enjoys heavy industrial demand that benefits from an expanding global economy.
For more information on the silver market, visit our silver category.