With all the focus on gold, silver has been in the throes of its own rally alongside the more popular precious metal. With this combined correlation and increased demand in the industrial marketplace, TD Securities strategists are long on silver.
Additionally, technical trends are forming that portends to more strength in silver. As of June 7, silver prices were at $17.59 per ounce.
“A low hurdle rate for a sustained trend reversal, combined with a backdrop of firming industrial demand, rising investment flows and limited speculative activity argue for a potential positive skew in the distribution of silver’s returns,” the bank’s commodity strategists said this week, in a Kitco news report.
Per the Kitco report, this “new trend could reverse the divergence in precious-metals space that saw gold posting gains while silver and platinum struggled, TD Securities said.”
“Risk appetite and deflationary worries cap gold. Industrial precious benefits from improving commodity demand,” the strategists said. “Conditions are favorable for a trend reversal in silver which could keep prices supported as a sustainable uptrend forms.”
Explosive Gains Ahead?
TD Securities strategists also made light of silver’s recent correlation to gold, especially when it came to tracking the movement of exchange-traded funds (ETFs). Gold, of course, was seeing new highs amid the height of the coronavirus pandemic sell-off in March and was still gaining before the recent rally stifled its upward trajectory.
“A simple analysis extracting the (rolling) regression coefficient of silver’s returns as a function of gold’s and our commodity demand indicator suggested that silver has increasingly been driven by commodity demand. At the same time, however, we note that silver ETF [exchange-traded-fund] holdings have been highly correlated to gold’s of late — suggesting investment demand for the precious metals theme is also flowing to silver. Speculative interest in CME products has been extremely low, but a CTA [Commodity Trading Adviser] buying program could revive speculative interest,” the strategists explained back in May.
Furthermore, the strategists say this “creates the set-up for explosive performance.” Given this, ETF investors looking to get in on the silver action can look to funds like the iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares ETF (SIVR), two of the largest ETFs backed by holdings of physical silver.
For those looking for leverage, they can look to ETFs like the VelocityShares 3x Long Silver ETN Linked to the S&P GSCI Silver Index ER (NasdaqGM: USLV) and the ProShares Ultra Silver (NYSEArca: AGQ).
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