The recent weakness in the precious metals space may have shaken some, but investors should reconsider exposure to silver exchange traded funds as the metal may find support from industrial demand.
“Despite silver’s recent drop, the current environment still remains attractive with the rising manufacturing data – a key driver for silver performance over time,” Maxwell Gold, Director of Investment Strategy at ETF Securities, said in a note.
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.
Currently, bearish sentiment towards silver continues to pressure the market as net futures positioning touched its lowest level since December 2015, Gold said. On the other hand, short positions have surged to 83% in June from the month prior on falling inflation expectations and rising above ground inventories.
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Given the overwhelming bearish sentiment and the recent price declines, investors may find a good contrarian bet with silver.
“Current valuations may be an attractive entry point, particularly if inflation surprises upward in the second half of the year and investors unwind their short positions providing a tailwind for prices,” Gold said.
According to the Federal Reserve’s latest statement, inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective or the mid-term, ABCNews reports.
ETF investors interested in gaining exposure to silver prices may consider options like the iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR), which are backed by physical silver bullion.
For more information on the silver market, visit our silver category.