Silver exchange traded funds were outperforming gold in Tuesday’s precious metals rally as investors awaited news from the European summit and after a report showing consumer confidence posted an unexpected decline in October.
There was safe-haven buying Tuesday on speculation European Union leaders will announce a plan Wednesday that’s short on details and specific steps for dealing with the debt crisis and Greece, Kitco News reported.
Silver prices hit a fresh four-week high. The silver bulls now have the overall near-term technical advantage, Kitco said.
The iShares Silver Trust was down 21% year to date as of Oct. 14, according to investment researcher Morningstar. Silver was hit hard during the September correction.
The metal was rising sharply Tuesday on lingering talk the Federal Reserve may engage in more economic stimulus, which would be bearish for the U.S. dollar.
“Investing in silver is not a priority for everyone, but it has its uses in a dollar-based portfolio. Silver can retain its purchasing power under strong inflationary pressure,” Morningstar analyst Abraham Bailin wrote in a profile of a silver ETF. “Governments have historically been lousy stewards of the value of their currencies, and a precious-metals position can help hedge a portfolio against such losses.”
He wrote a small position in precious metals such as silver could be considered an insurance policy if the Fed eases further.
“In comparison with gold, silver is not a perfect substitute. Silver’s industrial uses make it a much more diluted ‘safe haven’ asset than gold and a less effective hedge against inflation,” the analyst wrote.
Some precious metals ETFs are backed by physical metal, while others buy futures contracts.
ETFS Physical Silver Shares
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Full Disclosure: Tom Lydon’s clients own SLV.