Continuing its breakout from Tuesday, silver surged as much as 7% on Wednesday, the latest explosion in the precious metal’s 85% price increase since March, usurping big brother gold and driving metals ETFs higher.
“Silver may have been the beneficiary of a double whammy,” Jeffrey Halley, an Asia Pacific senior market analyst at OANDA said in a Wednesday email.
“Firstly, as the poor man’s precious metal, catching gold’s tailwind from negative real yields across the US yield curve. Secondly, it has industrial applications and will thus, benefit from the buy-everything global reflation trade prevalent in markets this week,” he wrote.
One issue for investors and traders in the industrial metal, however, is that silver has “serious liquidity issues” when compared to gold futures, which means that when the commodity sees price movements, they can be extreme, and often dangerous he said. One benefit for investors using ETFs is that they can mitigate at least some of this volatility.
Halley explained, however, that until silver reaches significant resistance or encounters headwinds, the momentum in stock markets, energy, and commodities driving it higher is unlikely to flag.
Silver futures rocketed as high as $23.35 Wednesday, but are trading back below $23 an ounce just before 2 pm EST, and analysts are bullish on the precious metal.
“The reopening trade is triggering strong industrial demand for silver and now that the $20 level has been cleared, bullish momentum might not see much resistance until its closer to the $22.50 level,” said OANDA’s New-York based senior market analyst Edward Moya.
“Silver was long due for a catch-up with gold,” said Peter Grosskopf, chief executive officer at Sprott Inc, per a MarketWatch report. “As a much smaller market, once investor interest enters in size, its supply-side gets swamped.”
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:
- 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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