Silver and the related exchange traded funds are soaring this year and some commodities market participants think the white metal can continue delivering for investors. The iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) are each up more than 14% year-to-date.
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. The Fed raised rates for the first time this year.
SLV and SIVR traded lower in anticipation of that rate hike, but have since rebounded and trade near their highest levels of 2017. Both ETFs reside about 12% below their 52-week highs. On a technical basis, it appears the silver ETFs are breaking out or close to doing so.
“I like this trade because silver showed resilience as gold moved lower last week, the break above a long term downtrend is significant, the technicals look good, I think some miscellaneous factors like the macro environment and political atmosphere are in silver’s favor, and most importantly the reward to risk ratio looks appealing. Furthermore, the breakout is above a very significant level so this could very well be the beginning of a real push higher. If silver, not the SLV, can break above $18.75 then speculators will be looking towards $21 per ounce,” according to a Seeking Alpha analysis of silver.
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.
Importantly, silver production is declining. Additionally, gold is trading higher and silver usually responds to that by overshooting gold’s upside.
“A regression analysis shows that silver has historically amplified the move of gold by 45%, but it is currently magnifying the appreciation in gold by 63.5%,” according to Seeking Alpha.
For more information on the silver market, visit our silver category.