Silver is one of this year’s best-performing commodities, a fact highlighted by year-to-date gains of nearly 13% for the iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR).
However, inflows to silver ETFs have been mixed to start the year, indicating that some investors may be concerned about the impact of the Federal Reserve raising interest rates on silver and other commodities.
Silver and other precious metals enjoyed safe-haven demand as the equities market plunged into a correction. The Federal Reserve is targeting three interest rate hikes this year, which could white on precious metals, but some market observers believe there is upside to be had with the white metal.
“Instead of piling into the asset that’s offered the biggest gain among 22 raw materials on the Bloomberg Commodity Index this year, ETF investors are retreating. iShares Silver Trust, the biggest ETF backed by the metal, is poised for a fifth straight monthly outflow, a trend not seen since the fund listed in 2006. Holdings in all silver-backed ETFs tracked by Bloomberg have shrank by 6.2 million ounces and are near the lowest in seven months,” reports Luzi-Ann Javier for Bloomberg.
As of Feb. 22, SLV had lost $107.3 million in assets this year, but SIVR had seen inflows of almost $9 million. Investors have been displaying more enthusiasm for silver miners ETFs. For example, combined year-to-date inflows to the Global X Silver Miners ETF (NYSEArca: SIL) and the PureFunds ISE Junior Silver ETF (NYSEArca: SILJ) are about $71 million. SIL and SILJ are two of this year’s best-performing non-leveraged ETFs, as they were last year.
Looking ahead, the quickly expanding photovoltaic panel or solar industry could continue to drive silver demand. Installations and investment in solar panels, which incorporate silver for its electrical conductivity, are at record levels, reports Henry Sanderson for the Financial Times.
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.
“Silver is surging amid demand for haven assets and bets that industrial use will rise at a time of tightening mine supply. While investors in commodity ETFs have shied away the metal in favor of gold, hedge funds are reaping the gains. Money managers built their silver net-long positions every week this year, taking holdings to the highest since September,” according to Bloomberg.
For more information on the silver market, visit our silver category.