The iShares Silver Trust (SLV) experienced a considerable pullback at the end of July, taking a breather from its steady ascent throughout the first half of the year.
Now, the most popular exchange-traded fund (ETF) backed by silver is once again climbing higher.
Resurgence for Silver
No matter how you slice it, silver has been among the best-performing assets of any kind thus far in 2016. In spite of the recent pullback from its highs, the spot silver price has regained its footing around $20.75/oz. This represents an advance of just shy of 50% from the low point for the silver price at the beginning of the calendar year.
That kind of surge over a five-year period would leave investors salivating—let alone the fact that the silver market has covered this amount of ground in just over half of one year!
Silver hasn't been above $20 per ounce since the middle of 2014, more than two years ago. Precious metal prices subsequently fell a considerable distance after this point. The silver price bottomed out at $13.88/oz in January, which was its lowest level since the beginning of the financial crisis.
Likewise, SLV has tracked almost perfectly with the rising price of silver. So far this year, it has gained about 48%. In the last week alone, SLV is up 3.7% to recover the momentum it lost in late July when trading volumes were exceptionally high.
It's worth noting that overall the silver market has exhibited a compelling 0.8 correlation with movement in the gold price. This is a very strong connection, essentially meaning that 80% of the change in the silver price can be explained by, or corresponds to, changes in the gold price. Nonetheless, silver has actually outpaced its precious metal cousin by nearly two-to-one this year.
Outlook for Silver ETFs
Even though silver ETFs like SLV are most popular among investors who focus on the stock markets and are looking for the most convenient way to diversify they portfolio by gaining some paper exposure to the silver market, it's more useful to turn your attention to the physical silver market for signals about how these funds will ultimately perform. They are riskier paper assets than owning physical silver yourself (such as in the form of coins or bars), but the close correlation between SLV and the silver price, for instance, shows that these ETFs track the real-world silver market—not the other way around.
To this point, ETF Daily News points out, "As demand for physical silver rises, so does the share price of SLV, so it pays for ETF investors to continued to watch the news related to precious metals demand." The same article goes on to detail how the demand has been double the original expectations for the new Australian silver coins known as the Silver Kangaroo coin.
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.