Why Silver ETFs are Outshining Gold

Precious metals like gold and silver have been the most sought-after commodity lately. This is because of investors’ drive for safe haven avenues amid the broad market turmoil due to escalation in tit-for-tat trade tariff war, collapse in bond yields, global recession fears, ongoing uncertainty surrounding Brexit and geopolitical tensions.

Additionally, rising hopes of loose monetary policies across the globe added to the metals’ strength. The Fed cut interest rates for the first time in more than a decade and the market is expecting more rate cuts following the latest bouts of data, which shows that U.S. manufacturing output shrank in August for the first time in over three years. Lower rates will continue to weigh on the dollar against a basket of currencies, raising the precious metals’ attractiveness as these do not pay interest like fixed-income assets (read: U.S. Manufacturing Shrinks: Sector ETFs That Grew).

Gold Versus Silver

Investors are flocking to gold in droves as a great store of value and hedge against market turmoil, leading to a steep jump in price. Notably, holdings in gold-backed ETFs surged to the highest levels in six years in August, as investors ploughed almost $5 billion into the precious metal as part of a so-called “fear trade” responding to mounting political risks.

While gold hit a six-year high, silver prices touched the highest levels in three years. The risk off trade environment is also driving silver prices higher, as the white metal is regarded as a store of wealth and an alternative investment to risky assets during economic and political uncertainty. In fact, rise in gold price has made the white metal cheaper and the ratio of gold to silver prices has fallen from July peak of 93 to 81 (read: Precious Metal ETFs Gain From Tit-for-Tat Tariff Action).

As such, silver started catching up with the gold rally and has been outshining it in recent weeks. Silver ETFs are clearly outperforming gold from both a 10-day and a one-month look with iShares Silver Trust SLV climbing 14.2% and 20.7%, respectively, compared to gains of 3.1% and 7.9% for SPDR Gold Trust ETF GLD.

Though silver demand has weakened due to slowdown in industrial activity in major economies, ongoing growth in the global solar PV industry, rebound in global computer shipments, as well as new sources of demand for sensors used in IoT and OLED lighting are providing boost to silver demand. Notably, silver is used in a wide range of industrial applications. About 50% of the metal’s total demand comes from industrial applications, while 30% comes from jewelry/silverware/coins and medal manufacturers.

Further, the latest rounds of positive news across the globe have eased recession fears that will perk up the industrial demand for silver. China service activity expanded at the fastest pace in three months in August, British lawmakers approved a law to delay Brexit and Hong Kong leader withdrew an extradition bill that had triggered months of often violent protests in the China-ruled city. Moreover, hopes of resumption in trade talks next month have spread a wave of optimism (read: What's Behind the Rally in Silver ETFs?).

Amid the latest developments, silver has an edge over the gold as the white metal is likely to continue climbing due to increase in industrial demand, and the yellow metal would come under pressure. Given the optimism and intense buying pressure on silver, investors have a long list of ETF options to tap the silver rally. Below, we have highlighted some of them:

Silver ETFs

These ETFs has a Zacks ETF Rank #3 (Hold).

SLV

The fund offers exposure to the day-to-day movement of the price of silver bullion. It is an ultra-popular silver ETF with AUM of $7.2 billion and heavy volume of nearly 13.2 million shares a day. It charges 50 basis points (bps) in fees per year from investors (read: Silver ETF Hits New 52-Week High).

ETFS Physical Silver Shares SIVR

This fund has AUM of $414.9 million and trades in moderate volume of around 145,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses. Expense ratio is 0.30%.

Invesco DB Silver Fund DBS

This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index, before fees and expenses. It is unpopular and illiquid with AUM of $16.8 million and average daily volume of less than 2,000 shares. DBS is the high cost choice in the silver bullion space, charging investors 79 bps in fees per year.

Silver Mining ETFs

Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market. Hence, mining ETFs are outperformers. We have highlighted them below:

Global X Silver Miners ETF SIL

This product provides investors access to a broad range of silver mining companies by tracking the Solactive Global Silver Miners Total Return Index. It holds 24 stocks in its basket with double-digit concentration on the top three firms. Canadian firms take the largest share at 48.1%, while Russia and South Korea take the remainder. The fund has managed assets worth $550.6 million and trades in a good volume of about 289,000 shares a day. It charges 65 bps in annual fees (read: 5 Top Stocks of the Top ETF of August).

ETFMG Prime Junior Silver ETF SILJ

SILJ provides direct exposure to the silver mining exploration and production industry by tracking the Prime Junior Silver Miners & Explorers Index. It holds 32 stocks in its basket with higher concentration on the top four firms. Canadian firms take the lion’s share at 67.9%, while the United States, Peru and Brazil take the remainder. The fund has managed assets worth $116.4 million and trades in good volume of nearly 224,000 shares a day. It charges 69 bps in annual fees (read: 5 Sector ETFs Surviving August Turmoil).

iShares MSCI Global Silver Miners ETF SLVP

This fund follows the MSCI ACWI Select Silver Miners Investable Market Index, providing investors exposure to companies that derive the majority of revenues from silver mining. It holds 33 stocks in its basket with Canadian firms making up the lions share at 69.6%. The United States, the United Kingdom and Peru are some of the other top countries. SLVP has AUM of $103.3 million and average daily volume of more than 85,000 shares. It charges 39 bps in annual fees.

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SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Silver Trust (SLV): ETF Research Reports
 
Invesco DB Silver Fund (DBS): ETF Research Reports
 
Aberdeen Standard Physical Silver Shares ETF (SIVR): ETF Research Reports
 
Global X Silver Miners ETF (SIL): ETF Research Reports
 
iShares MSCI Global Silver Miners ETF (SLVP): ETF Research Reports
 
ETFMG Prime Junior Silver ETF (SILJ): ETF Research Reports
 
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