Silver ETFs Outshine Gold Amid Global Sell-Off
Zacks Investment Research | Dec 12, 2014 12:55AM ET
Investing in precious metals such as gold and silver once again grabbed investors’ attention following the global stock market sell-off on Tuesday sparked off by political instability in Greece and the announcement of snap presidential elections along with renewed fears surrounding global economic growth (read: Gold ETFs Dip on Swiss Vote, Will India Save the Yellow Metal? ).
The risk off trade is also driving silver prices higher, as the white metal is regarded as a store of wealth and an alternative investment to risky assets during economic and political uncertainty. Additionally, silver has become extremely cheap after declining for three years and rising industrial applications bode well for the metal’s demand.
This is especially true as silver industrial demand is expected to grow 27%, adding 142 million ounces of silver demand through 2018 compared with the 2013 levels, as per U.S. Mint. Additionally, the report showed that American Eagle silver bullion coins sales have reached 42.37 million ounces year to date, slightly lower than the historical high 42.68 million ounces sold in 2013.
The bullish trend in the two precious metals are likely to continue at least in the near term especially if the combination of low oil prices and slumping stock markets promote investor risk aversion or new sovereign risk concerns flare up. Given this, both gold and silver ETFs have seen smooth trading over the past two days.
Silver Outshines Gold
In fact, silver has an edge over the gold as the white metal is used in a number of key industrial applications, which are increasing with stepped-up domestic economic activity. Silver ETFs are clearly outperforming gold from both a five-day and a one-month look, adding over 4% and 8%, respectively, compared to gains of 1.4% and 4.4% for GLD. These products also have a Zacks ETF Rank of 2 or ‘Buy’ rating, suggesting their continued outperformance in the coming weeks.
iShares Silver Trust (ARCA:SLV)
The fund tracks the price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase Bank. It is the ultra-popular silver ETF with AUM of over $5.6 billion and heavy volume of nearly 7.5 million shares a day. It charges 50 bps in fees per year from investors.
ETFS Silver Trust US (NYSE:SIVR)
This fund has amassed $303.8 million in its asset base while trades in moderate volume of more than 100,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses and is backed by physical silver under the custody of HSBC Bank USA in London. Expense ratio came in at 0.30%.
PowerShares db Silver Fund (NYSE:DBS)
This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index, before fees and expenses. It is unpopular and illiquid with AUM of $21 million and average daily volume of less than 8,000 shares, increasing the total cost for the fund in the form of wide bid/ask spread. DBS is the high cost choice in the silver bullion space, charging 79 bps in fees per year from investors.
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Bottom Line
It is clear that buying pressure has been intense for silver compared to gold and that the most recent trend is extremely favorable for the commodity given the decline in dollar, global economic woes, and political uncertainty. Additional buying could be in the cards for the space should oil prices stabilize or tensions in Greece escalate.
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