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Forget Gold, Buy Silver ETFs Instead

A rush to seek safety for the most part of 1H16 triggered by global growth issues and a major event like Brexit at the end of the second quarter bolstered demand for safe haven assets. As a result, safe metal gold saw a glorious rally in the first half of 2016 after quite a long time. Gold bullion ETF SPDR Gold SharesGLD is up over 27% so far this year (as of August 1, 2016) (read: Top ETF Stories of the First Half of 2016 ).

Investors should note that not only gold, most precious metals are on a tear this year on a subdued greenback as these metals are linked to the U.S. dollar. Dovish central banks across developed economies, including the U.S., to ward off growth issues actually made this asset class a winner.

Though equities had had an astounding rally in July, optimism over precious metals also remained intact. But there are analysts who believe that this mad rush in gold will eventually lose pace and that gold will return to $1,200-$1,250 by the end of the year. Notably, gold is trading at $1,356.40 to start August.

Though there are also some analysts who expect gold to hit $ 1,425 an ounce by the end of Q3, it seems that the time has come for investors to take a break from gold and look at another soaring metal, namely silver. We'll tell you why.

Is Gold Too Teeming? Try Silver Then

Like gold, silver also serves as a safe haven. So, with still-shaky investor sentiments given lower-than-expected Q2 U.S. GDP growth, markets may turn edgy ahead and boost safe-haven metals like silver (read: ETF Strategies for 2H ).

Investors should note that silver was a bit late in joining the precious metal party this year. So, due to its late entry into the rally, the bullishness in silver is likely to last longer than gold, according to some analysts . After such a stupendous surge in the yellow metal, many investors would like to bet on its low-priced cousin. Also, many investors view silver as a leveraged play of gold, as per ETF Securities.

So, while you can play gold ETFs like GLD or IAU with a short-termview, it might be better to tap silver ETFs. The white metal saw solid trading in the last one month and actually breezed past the yellow metal in the last five trading sessions. While GLD added about 0.6% in the last one-month time frame (as of August 1, 2016), the silver bullion ETF iShares Silver Trust SLV added about 3.7%.

Industrial Demand Turning Steady

Moreover, silver has high usage in industrial activities with about 50% of total demand coming from industrial applications. With China, the biggest industrial fabricator after the U.S., seeing manufacturing sector growth in July for the first time since February 2015 (as per a private survey) and the U.S. industrial sector being steady, silver had every reason to outdo gold in the month.

Slumping Gold-Silver Ratio

The gold-to-silver ratio indicates how much an ounce of gold is worth of silver. As per CNBC , at the start of the year, "an ounce of gold was worth as much as 77 ounces of silver; by the end of February, that number would rise above 83." But at the current level, the ratio dropped to 65 . This points to investor inclination for silver.

In fact, one analyst hinted that "about five years ago, the ratio was closer to 35, while the historical average is around 15." This means given the favorable trading scenario, the gold-silver ratio has chances of falling further.

If Fed Hikes

Investors should note that if the U.S. economy comes up with sturdy readings, the dollar will strengthen and may put pressure on broad-based commodities along with gold. But since silver has considerable usage in industrial activities, a recovering economy may continue to push silver ETFshigher (read: A Positive-But-Cautious Fed Meet: Buy These ETFs ).

Strong Industry Rank for Silver

Investors should also note that the silver mining industry , at least in terms of its Zacks Industry Rank, is in a great position. The Zacks Industry Rank for the silver mining industry is one while it is eight for the gold mining industry, at the time of writing.

Play Silver Rally with These ETFs

Needless to say, silver ETFs are clearly outperforming gold from both a five-day and a one-month look (as of August 1, 2016). So, investors can play this bullish trend with the below-mentioned silver ETFs (read: Commodities Enter Bull Market: 6 ETF Winners ).

iShares Silver Trust 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 $7 billion and heavy volume of nearly 11.4 million shares a day. It charges 50 bps in fees per year from investors.

ETFS Physical Silver Shares SIVR

This fund has amassed $374.7 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 bullion less the Trust expenses. Expense ratio comes in at 0.30% (see: all the precious metal ETFs here ).

PowerShares DB Silver ETF 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. It is unpopular and illiquid with AUM of $96.3 million and average daily volume of about 50,000 shares, increasing the total cost for the fund in the form of a wide bid/ask spread. DBS charges 79 bps in fees per year from investors.

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SPDR-GOLD TRUST (GLD): ETF Research Reports

ISHARS-GOLD TR (IAU): ETF Research Reports

ISHARS-SLVR TR (SLV): ETF Research Reports

PWRSH-DB SILVER (DBS): ETF Research Reports

ETF-SILVER TRST (SIVR): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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