While hard asset traders are trying to time the Federal Reserve rate hike, investors can still look to silver and related exchange traded funds in the meantime.
“The most attractive precious metal is silver,” Maxwell Gold, Director of Investment Strategy at ETF Securities, told ETF Trends in a call. “It has the best fundamentals.”
Gold argued that while gold bullion could suffer in a rising rate environment since the precious metal does not offer a yield and grows less attractive to other higher-yielding conservative debt assets, silver will enjoy industrial demand – abound 50% of silver demand comes out of industrial related industries like solar, electronics and automobiles. Due to its more cyclical nature, silver shows a 80% correlation to gold.
Silver may continue to enjoy greater demand as industrial production speeds up.
“A combination of higher inflation, a weakening US dollar (in first half of year) and improving manufacturing growth is likely to see silver prices trade higher to US$21/oz in 2017,” Nitesh Shah, Commodity Strategist at ETF Securities, said in a research note.
Comex silver futures are currently hovering around $18.0 per ounce.
The Global Manufacturing PMI stood at 52.7, compared to the long-term average of 51.4, and was sitting at a 34-month high, indicating that manufacturing activity will continue to rise.
Moreover, falling supplies will also help support silver prices. Shah pointed out that mining capital expenditure has been sliding, which has cut into supply. Silver has been in a supply deficit for the past 11 years and the ongoing decline in mining investments will contribute to further deficits.
Investors who are bullish on the silver outlook can take a look at physical silver bullion-backed ETFs like the ETFS Physical Silver Shares (NYSEArca: SIVR). The silver ETF holds silver bars stored in London, United Kingdom vaults. SIVR is up 13.3% year-to-date.
For more information on the silver market, visit our silver category.