Silver never goes out of style. The same appears to be true of the iShares Silver Trust (SLV).
This is what investors continue to signal to the financial markets. No matter how much downward pressure the big players (institutional investors, i.e. megabanks) put on the price of silver, the Average Joe investors simply pile up more of the argent metal.
While it is always advisable to hold physical precious metals rather than the paper contacts tied to them, the silver ETF market provides a useful glimpse into sentiment surrounding the metal.
Shift Toward SLV
It's no small secret that institutions with enormous financial means at their disposal, like giant banks and governments, use their buying power to manipulate the silver market. This has gone on for years, especially since the silver price began to drop precipitously after the worst of the financial crisis had seemed to abate.
As of a week ago, silver was largely hiding in the shadow of its more popular cousin gold. This was particularly the case in the ETF market. Analysis by ETF Trends put it this way: "Investors have been nibbling at silver ETFs, but that is all it has been: A nibble. SLV has $138 million in new assets while GLD’s inflows are north of $5.1 billion."
However, investors seemed to turn their attention to silver as prices for both precious metals began to drop. During the month of March, silver ETF holdings overall rose 846 metric tonnes. This was the most in a single calendar month since August 2013. It also brought the current bullion stockpiles collectively held by these silver funds to a fresh one-year high. Interestingly, the analysis by ETF Trends correctly predicted this rally.
Buying on the Dips
There are a few takeaways from the accelerating action in SLV, which generally tracks just behind the spot price. The relatively low long interest in silver relative to gold means there's plenty of room for the silver price to run. This is especially true as investors begin to take note of the imbalanced gold-silver ratio.
At minimum, this represents a great buying opportunity "on the dips," or when prices momentarily drop. This action is clear from the chart above: even as SLV is on the uptrend and trading volumes are rising, we see recurring declines. However, the institutional leverage against silver can only go one direction for so long until the cat's out of the bag, so to speak, an the market explodes higher.
Yet, for the time being, we are currently seeing the biggest commercial hedge against silver in the past decade. This could indicate that greater demand for silver is expected in the long-term, as sellers must cover themselves in case future production is sold at a lower price. The most recent data from the Commitment of Traders (CoT) report published by the CFTC, the body that regulates the futures market for commodities, shows that almost four times as many producers are short (hedging against) silver than long. Meanwhile, the managed money (like hedge funds) still maintain a heavy net long position. In that case, the ratio of short and long contracts is almost perfectly inverse to the producers.
Whatever the trading action in the short-term, demand for silver continues to rise on both the paper and physical markets.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.