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How To Profit From Silver's Shine

|Includes: GLTR, SIL, SIVR, iShares Silver Trust ETF (SLV)
Since I'm taking my first vacation in almost two years, I wanted to divert your attention to this article while I'm out of the office. If you missed it the first time around, I encourage you to take a moment. With overall market conditions operating in their current state, there is a profit to be made if you know where to look.

In all my years (the total is quickly approaching a decade; where did the time go?!) trading and writing about financial markets, I've found myself frequently surprised about how people react to sensational headlines and rumors. Maybe I shouldn't be. As one of my trading mentors told me (I think he was paraphrasing from a book): The only thing about the market that doesn't change is human behavior. Yep, we humans are a predictable bunch.

Take the example of silver prices and the price action in ETFs backed by physical silver after the CME Group went on a margin-raising rampage for silver futures contracts earlier this year. Gold's cheaper cousin was stalking highs not seen since the Hunt Brothers cornered the silver market over three decades ago and the white metal was probably a little frothy, but the margin hikes predictably scared a lot of investors out of the market.
The April/May area on the chart of the iShares Silver Trust (NYSE: SLV), the largest and most liquid ETF backed by physical silver, is flat-out gut wrenching. Then again, the last several months have been quite favorable to silver and looks like the metal could be shaping up for a run back to its 2011 highs, if not beyond.

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Yes, silver has had a spectacular run, but with all this quantitative easing and fiat currency talk, do you really want to be long the dollar or euro these days? I know I don't. So a little (at least) silver exposure makes sense right now. Check out these ETFs:
  1. ETFS Physical Silver Shares (NYSE: SIVR): This fund backed by physical silver is a fairly new rival to the more heavily traded iShares Silver Trust. Short-term traders can pick either fund, but long-term investors may want to opt for SIVR with its expense ratio of 0.3% compared to 0.5% for SLV.

  2. Global X Silver Miners ETF (NYSE: SIL): SIL is one of my personal favorites, but don't consider that a “buy” recommendation because this ETF, which tracks an index of silver miners is NOT for the faint of heart. In its short lifespan, SIL has had multiple days of moves of 5% or more. Remember miners will fall harder than the underlying commodity when that commodity retreats. Then again, miners have been up to the task as of late.

  3. ETFS Physical Precious Metals Basket (NYSE: GLTR): This new ETF with an appropriate ticker will get you involved with physical holdings gold, silver, platinum and palladium in one fund. Silver is currently the second-largest holding. GLTR's concept is an intriguing one, but note that the each of these metals is volatile on their own and putting four of them together escalates that volatility.
Of course, there are other avenues in the ETF universe for investors looking for silver exposure, but these are my personal favorites. There are plenty of price forecasts out there calling for silver to run to $50. Others are bit more ambitious and call for $60 an ounce. Some believe the gold/silver ratio of 25 will remain steady over the coming years and those prognosticators are calling for $5,000 an ounce on gold and $200 an ounce on silver. Whether it's $50, $60 or $200 an ounce, I'm willing to bet silver is headed higher from here.


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