While broad-based global growth worries in Q1 and the Fed's dovish stance in the March meet stalled the strength in the greenback, it spread joy within broad-based commodity investing. Most investors focused on gold taking cues from the Fed's dovish comments over rate hike. Another corner of the precious metals world - silver - has also done quite well lately.
The white metal has seen extremely solid trading in recent times and touched a 10-month high on April 19 owing to some disappointing economic data, mainly from the U.S. The jump was so acute that silver has actually breezed past the yellow metal.
Most market participants have now started to expect that the Fed will not act on policy tightening again before the second half of 2016 given persistent volatility in the oil patch, corporate earnings weakness and sluggish U.S. market recovery.
All these are likely to keep the greenback soft in the coming days and precious metals strong. Renewed tension in the oil patch after the output freeze deal in Doha failed may also bolster the need to invest in safe havens like silver and gold.
Also, silver might see an output crunch ahead, as "Zinc miners have announced production cuts resulting into a proportionate decline in silver output as well, silver being a byproduct of zinc," going by Business Standard.
Apart from this, 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., gaining traction on manufacturing activities, silver might continue to see smooth trading in the coming days. Plus, a pickup in global industrial activities is expected ahead, thanks to a host of stimulus measures in various parts of the globe.
Silver Mining Vs. Gold Mining?
Whatever the case, the ultra-popular gold bullion exchange-traded fund SPDR Gold Trust ETF (NYSEARCA:GLD) lost about 0.4% in the last five trading days (as of April 19, 2016), while silver bullion fund iShares Silver Trust ETF (NYSEARCA:SLV) advanced over 4.7% during the same time frame.
Actually, many investors have started to view silver as a leveraged play on gold, as per ETF Securities. Investors should also note that the silver mining industry, at least in terms of its Zacks Industry Rank, is in a decent position, having been ranked in the top 5% overall. Many silver mining companies are presently top-rated as per the Zacks methodology.
Investors can tap the surge in silver demand by investing in silver mining ETFs, which often play as a leveraged version of the underlying metal. The case appears to hold true for silver as well. Silver mining funds, including the Global X Silver Miners ETF (NYSEARCA:SIL), the iShares MSCI Global Silver Miners ETF (NYSEARCA:SLVP) and the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ) gained about 9.9%, 11.9% and 16.3%, respectively, during the last five trading days (as of April 19, 2016).
The trio hit a 52-week high on April 19, 2016, with SILJ, SLVP and SIL adding about 10.6%, 9.6% and 9.2%, respectively. On the other hand, gold mining ETFs like the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), the Sprott Junior Gold Miners ETF (NYSEARCA:SGDJ) and the Market Vectors Gold Miners ETF (NYSEARCA:GDX) added 7.5%, 5.8% and 4.9%, respectively, on April 19, 2016, though even these hit 52-week highs.
It seems buying pressure is intense in the silver mining ETF space, and given the pushback (apparently) in the Fed rate hikes, extra buying is likely. As a caveat, we would like to note that this way up in commodities may be short-lived. Also, silver prices are often more hit than gold when things are against precious metal investing. Thus, risk-loving investors might go for this momentum play and hoard as much gains as possible till the party is on.