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Silver ETFs May Outshine Gold Again In 2017: The 5 Ways To Play A Rally

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Silver slid out of gold's shadow in 2016 on the way to impressive gains. Some ETF investors want to know if this is still a good time to invest in precious metals or if the moment has slipped quite away.

Both gold and silver are likely to rally again after coming well off their peaks, with the white metal holding more potential upside in 2017, according to ETF Securities. The $22 billion firm offers a suite of five exchange traded funds investing in gold, silver and diversified precious metals.

Not everyone is bullish on precious metals - or the materials sector to which gold mining companies such as Newmont Mining ( NEM ) belong.

"The dollar and a run-up in material prices - gold particularly - have skewed that sector, and I'd be very, very cautious in materials going forward," Rob Stein of Astor Investment said in a recent interview with ETF.com.

However, Maxwell Gold, director of investment strategy at ETF Securities, expects gold to rally to $1,400 an ounce in 2017 on the back of continued demand from investors and speculators.

Not even a stronger dollar - if policymakers move to raise interest rates - may dent that rally.

"While U.S. dollar appreciation is usually negative for gold, we see a synchronization occurring between gold and the dollar, which have the potential to rally simultaneously, as the Federal Reserve chases inflation higher against a backdrop of global monetary stimulus," he writes in a new report. In other words, real interest rates - interest rates minus inflation - are likely to stay low or negative.

IBD'S TAKE : Gold and silver are among the many ETF tools to safeguard portfolios in rough or uncertain markets. Investors would do well to familiarize themselves with other options.

Gold and silver prices are 80% correlated, but there are key differences between the two metals, according to ETF Securities.

In contrast to gold, supply levels have a very big influence on silver prices. Gold is closely tied to investment demand as a hedge against inflation or volatility.

More than half of silver's annual demand stems from industrial applications . It's used in the photovoltaic cells of solar panels, for example. Gold sees "constructive fundamentals for silver" against a backdrop of increasing demand and decreasing supplies.

Silver has been finding support at the $17.50 per ounce level. In Gold's view, silver could rise between $22 and $24 per ounce in 2017. That's a 26% jump at the low end.

After a sterling show earlier this year, silver stock and commodity ETFs have fallen as much as 29% under their August highs.

[ibdchart symbol="slv" type="daily" size="half" position="leftchart" ]

The $6.47 billion iShares Silver Trust ( SLV ) sat 15% below its high of 19.71 on the stock market today . Year to date through Oct. 26, SLV is up nearly 27% vs. a 19.1% gain for SPDR Gold Shares ( GLD ).

Investors cooled on precious metals recently as the odds of a rate hike in the near term rose. Gold sees the pullback as an attractive entry point for investors who have stayed on the sidelines.

ETFs backed by physical silver are a pure play on the white metal. They also act as key portfolio diversifiers relative to silver mining funds, which hold equity risk.

Here are the five main ways that ETF investors bullish on silver can play a potential rally:

  • IShares Silver Trust ( SLV ) tracks the spot price of silver using silver bullion held in London. It is the largest and most liquid fund in its segment but comes with a relatively high 0.50% expense ratio.
  • ETFS Physical Silver ( SIVR ) also tracks the silver spot price by holding the metal in London vaults. It is a smaller fund with ample liquidity. It has a 0.30% expense ratio - making it a far cheaper option for a pure-play exposure to silver.
  • Global X Silver Miners ( SIL ) invests in global companies that are actively engaged in silver mining. It trades well but has a relatively high 0.65% expense ratio.
  • IShares MSCI Global Silver Miners (SLVP) merely requires holdings to derive most of their revenues from silver mining, giving investors more exposure to companies that mine gold and other metals. It has a 0.39% expense ratio.
  • PureFunds ISE Junior Silver (SILJ) skews toward smaller companies in the space, as its name implies. Its 0.69% expense ratio puts it at the more expensive end of the segment.

Investors considering an ETF that invests in commodity silver should look at the tax implications of their investment. Some precious metal ETFs are considered collectibles and don't qualify for the 15% or 20% tax rate on long-term capital gains.

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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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