With silver trading modestly higher this year, the Global X Silvers Miners ETF (NYSEArca: SIL) is up about 5.75%.
SIL, the largest silver miner-related ETF, tries to mirror the Solactive Global Silver Miners Total Return Index, which is also comprised of global silver miners.
Moreover, unlike gold, silver sees much higher industrial demand. The precious metal enjoys heavy industrial demand that benefits from an expanding global economy. On a technical basis, silver looks appealing, as well.
“Silver is a significant material for industrial uses as well, because of its thermo-electro conductivity, ductility, malleability, and high sensitivity to light,” according to Global X research. “The metal is used extensively in a variety of faster-growing electronics segments such as solar panels, LED lighting, flexible displays, touch screens, RFID tags, cellular technology, and water purification.”
According to the Silver Institute, the largest single component of physical silver demand is industrial applications. About 55% of all silver consumed is for industrial use, including various segments like electronics, medicine, water purification, solar cells and chemical catalysts, among others.
Other Catalysts for Silver
Another bullish factor to consider with silver is that demand is once again expected to outpace supply.
“In 2017, demand outpaced supply by 810 tons,” said Global X. “If investments in silver bars and coins are excluded from the analysis, however, then the supply of silver continues to exceed demand. This implies that demand for silver as a store of value and an investment can dramatically swing prices, particularly given the volatile nature of such demand.”
Silver’s slack start to 2019 is betraying what were optimistic forecasts for the metal heading into the year after a rough 2018. A more accomodative Federal Reserve would bolster the case for silver. Looking ahead, silver and other precious metals may continue to face an uphill struggle as the Federal Reserve is expected to keep hiking interest rates, which makes non-yielding assets like commodities less attractive.
Still, there are compelling reasons to embrace silver miners.
“Mining stocks are considerably more liquid than physical silver as they can be bought and sold during market trading hours. Silver mining stocks can also be advantageous from a tax perspective, as long term holders are taxed at long term capital gains rates, which are currently at a maximum of 23.8%. A potential drawback is that investors are exposed to idiosyncratic risks associated with owning the stock of a particular company,” according to Global X.
For more information on the silver market, visit our silver category.