Silver exchange traded funds are following their gold counterparts lower this year, but investors’ renewed interest in gold could benefit silver funds, such as the iShares Silver Trust (NYSEArca: SLV). SLV, largest silver exchange traded fund, is lower by more than 13% year-to-date.
SLV has recently shown signs of life, gaining more than 5% this month and almost 4% in the fourth quarter.
Potential weakness in global manufacturing has been a particular worrying development for the silver market. While silver is classified as a precious metal, it is still used in a range of industrial applications from electronics to jet-engine manufacturing, which makes the metal sensitive to global economic trends, the Wall Street Journal reported
“Ole Hansen, head of commodity strategy at Saxo Bank, tracks the ratio of gold to silver and said the recent moves point in favor of higher silver prices,” reports Bloomberg. “The ratio has been stretched out in recent months, showing that silver is the cheapest relative to gold in 25 years. Hansen said the trend is starting to reverse, with the ratio falling below a 50-day moving average this week.”
What’s Next
A move to $17 an ounce would be a significant increase from silver’s current levels around $13 per ounce. The silver market is in a surplus this year thanks to slack demand, but the market is expected to be more balanced in 2019.
Recent action in the gold/silver ratio “means that silver is outpacing gold after months of lagging behind. The white metal is up 2.3 percent this month to $14.53 an ounce, compared with a 1.1 percent advance in bullion,” according to Bloomberg.
Looking ahead, silver and other precious metals may continue to face an uphill struggle as the Federal Reserve is expected to raise interest rates this month, which makes non-yielding assets like commodities less attractive. However, it is possible the Fed slows its pace of rate hikes next, potentially weighing on the dollar in the process. A weaker dollar could boost silver and other commodities.
For more information on the silver market, visit our silver category.