Silver Launches Higher, Driving ETF Interest | ETF Trends

Silver is continuing its explosive run higher on Wednesday, amid moves in gold, the energy complexes, and stocks. Silver ETFs are getting a boost as well.

July was an epic month for the industrial metal, with silver rallying an impressive 34%, beating every major global financial asset. The price rise was the most substantial since December 1979, easily besting the 11.5 percent jump in gold, according to Deutsche Bank. While a handful of individual stocks beat even silver, the industrial metal was head and shoulders above other commodities and stock indices and is over $27 an ounce on Wednesday.

Part of the push higher may be due to investors who are unable to afford the more expensive gold prices and instead opt for silver.

“The pace of buying has been incredible across the silver products, whereas you’d expect that strength in gold,” said Suki Cooper, an analyst at Standard Chartered in New York. “But once investors feel they are priced out of gold they may turn to silver, or they may look at the gold/silver ratio and feel it is undervalued.”

ETFs in silver have benefitted tremendously from the moves. Interest in silver-backed exchange traded funds had advanced to a record 8,445 tonnes this year, Ms. Cooper added almost twice the prior record in 2009. Interest in gold and silver has skyrocketed this year, as concerns that the Federal Reserve’s stimulus, aimed at weathering the pandemic could result in inflation, which precious metals are often believed to provide a hedge against. Historically low bond yields are also helping metals.

Investors have closely monitored the gold/silver ratio as well. The price of silver, which is extremely volatile, was trailing gold at the beginning of the year, driving the gold/silver ratio to an all-time high of 125 in March. Since then silver has advanced over 100% while gold has climbed 30%.

Silver’s industrial usage in electronics and solar panels is also driving demand, according to Jonathan Butler, an analyst at Mitsubishi. The need for protection during the coronavirus pandemic has spawned demand for silver, which functions as a catalyst in ethylene oxide that is utilized in plastics for face masks and gloves, Mr. Butler said.

“Silver’s performance as a supercharged version of gold can be partly attributed to it having a solid industrial base, unlike gold, and one that stands to benefit . . . in the scary new world of coronavirus,” he said.

ETF investors looking to get in on the silver action can look to funds like the  iShares Silver Trust (SLV),  which is up more than 4% Wednesday, and the  Aberdeen Standard Physical Silver Shares ETF (SIVR),  two of the largest ETFs backed by holdings of physical silver:

  • SLV seeks to reflect generally the performance of the price of silver. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. It is not actively managed. The Trust does not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the price of silver.
  • SIVR seeks to replicate, net of expenses, the price of silver bullion. The shares are backed by physically allocated silver bullion held by the custodian. All physical silver held conforms to the London Bullion Market Association’s rules for good delivery.

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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