Gold Might Be Down, But This Silver ETF Could See Strength

Given a choice right now between gold and silver, it appears that hedge funds may have a penchant for the industrial utility of the latter.

While it may not match gold in terms of scarcity and thus price, silver can have a wide range of uses as the economy continues to run hotter. Trade data from the Commodity Futures Trading Commission shows that the smart money could be favoring silver.

“Hedge funds remain reluctant to jump into gold; however, silver is attracting new momentum as its industrial demand picks up, according to some analysts quoting the latest trade data from the Commodity Futures Trading Commission,” a Kitco News article said. “Analysts have noted that rising inflation fears have sparked renewed interest in base metals; at the same time, depleted inventories as demand picks up have created a significant supply/demand imbalance. Copper and silver have both seen a rise in bullish interest as investors look for inflation hedges.”

The economic backdrop should be ideal for gold given its use as an inflation hedge, but that hasn’t been the case just yet. Investors may be eyeing the Federal Reserve’s stimulus tapering program to see if the central bank uses the full spectrum of its monetary policy powers to stave off inflation.

“While gold has historically outperformed most asset classes in periods of high inflation, investors have remained cautious about the yellow metal as they remain intensely focused on the Fed’s exit,” analysts at TD Securities said.

Momentum Rising for This Silver ETF

In the meantime, there’s been recent strength for silver ETFs like the Invesco DB Silver Fund (DBS). Up about 10% the past month, DBS has been gaining momentum as seen in its relative strength index (RSI) reading.

Currently, using the one-month chart, the RSI level is below the overbought territory and has been steadily rising since the beginning of October. It moved up above the 50-day moving average to show near-term strength and is heading towards the 200-day moving average, which could mean a long-term trend higher should it pass that level.

DBS seeks to track the DBIQ Optimum Yield Silver Index Excess Return, which is intended to reflect the changes in the market value of silver. Additionally, the fund holds Treasury Securities, money market mutual funds, and T-Bill ETFs for margin and/or cash management purposes only.DBS Chart

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