The iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR), which are backed by physical silver bullion, have traded slightly lower since the start of the fourth quarter and year-to-date performances for the silver ETFs are well behind competing gold funds.
However, some commodities market observers believe silver can rebound in the near-term. The rebounding U.S. dollar is hurting silver. The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the tracking exchange traded fund for the U.S. Dollar Index, is one of the worst-performing currency exchange traded funds this year. UUP is lower by almost 8% year-to-date. Silver and other commodities are denominated in U.S. dollars, meaning weaker greenback is often supportive of upside for commodities prices. The dollar has recently traded slightly higher, weighing on some commodities.
Silver could get another boost if gold prices start rebounding in earnest. Indian demand is vital for gold because the country is the second-largest buyer of the yellow metal behind China. India, one of the world’s largest gold consumers, could be set to lower its import tax on bullion, which could be major catalyst for gold prices.
The problem there is that the rebounding dollar coupled with expectations that the Federal Reserve will raise interest rates at its December are pressuring gold, making the correlations between the yellow metal and silver unappealing for the moment. Higher interest rates diminish the allure of gold and silver because the precious metals do not offer interest payments.