Over the past few months, precious metals have taken the cake and attracted an influx of assets, pushing the price of silver and its ETFs up. As for the future of the metal, it appears to remain bright and investors have a slew of choices to gain both direct and indirect exposure.
This recent rally in silver has been driven primarily by macroeconomic forces. Increases in money supply and a record budget deficit have many concerned about the overall strength of the dollar and a reduction in the purchasing power of the nation.
In the near future, it appears that imbalances in supply and demand are likely to provide positive price support to silver. Due to its heavy industrial uses, demand is expected to increase as emerging economies around the world grow and developed nations concentrate on cleaner energy sources. On the supply side, total annual world consumption is higher than mine production and is slowly eating away at inventories held by governments. Furthermore, the US Geological Survey suggests that silver in the Earths’ crust is diminishing at an exponential rate.
In a nutshell, the basic forces of supply and demand are likely to support silver prices in the near future giving investors something to look forward to.
Some ways to play silver include:
- iShares Silver Trust (SLV), which is the largest U.S.-listed silver ETF. SLV holds physical silver bullion and carries an expense ratio of 0.50%.
- ETFS Physical Silver Shares ETF (SIVR), which, similar to SLV, holds physical silver bullion and tracks the physical price of silver.
- SGlobal X Silver Miners ETF (SIL), which is an equity-based play on silver giving exposure to 25 different silver miners around the world. Its top holdings include Silver Wheaton Corp (SLW), Fresnillo Plc and Pan American Silver Corp. (PAAS).
- E-TRACS CMCI Silver ETN (USV), which is an unsecured, unsubordinated debt security linked to an index designed to reflect the returns available on an basket of silver futures contracts
- PowerShares DB Silver Fund (DBS), which gives exposure to silver through the utilization of futures contracts.
- PowerShares DB Precious Metals (DBP), which tracks a rules-based index composed of futures contracts on both gold and silver. Currently, nearly 21.9% of the index’s assets are allocated to silver and 78.1% to gold.
- SPDR S&P Metals & Mining ETF (XME), which holds 25 different stocks that derive their revenues through the mining of metals. Some of its top holdings include mining giant Freeport-McMoRan Copper and Gold (FCX), Hecla Mining Company (HL) and Stillwater Mining (SWC). These mining companies are all likely to reap the benefits from increased silver demand due to the fact that nearly 65-70% of global silver is produced through electrolytic copper refining, gold, nickel and zinc refining.
Disclosure: Long SLV