Market Overview

If Silver Keeps Soaring, Party With Miners ETFs

If Silver Keeps Soaring, Party With Miners ETFs

Obviously, one of the big stories in the precious metals complex this year is the resurgence of gold. Amid declining interest rates the world over and pressure on riskier assets, the yellow is luring investors and gaining higher price targets on an almost daily basis.

What Happened

Recently silver exchange traded funds have joined the party. Over the past 90 days, the iShares Silver Trust (NYSE: SLV) is higher by 14.8%. As is often the case with gold, miners are overshooting silver's gains.

The Global X Silver Miners ETF (NYSE: SIL), which tracks the Solactive Global Silver Miners Total Return Index, has offered nearly double the returns of SLV over the past three months.

Why It's Important

Trade wars, increasingly dovish global central banks and silver looking attractively valued relative to gold are among the factors indicating SIL could have more upside to deliver.

“While rising rates can be a headwind for non-yield-bearing precious metals like gold and silver, falling rates can make the two metals more attractive,” said Global X. “This is because the opportunity cost is shrinking between holding a government bond with a falling yield and a precious metal with no yield. Therefore, if central banks remain dovish, as the markets expect, this could be another positive factor for precious metals prices.”

Investors should note that although there are small-cap miners funds on the market, SIL isn't necessarily a large-cap fund. The average market value of its components is $2.18 billion, essentially putting the fund in small-cap territory.

What's Next

For investors that missed SIL's recent pop, the good news is that silver looks like a good deal when measured against gold.

A common valuation metric to assess whether silver is undervalued relative to gold is the gold/silver ratio,” according to Global X research. “A high ratio indicates silver could be undervalued. Historically, since 1998, the gold/silver ratio has averaged a level of around 64. Although silver has rallied recently, the ratio remains well above historical levels at just below 90. This could be an indication that within the precious metals complex, silver may be more of a relative value play than gold.”

Assuming SIL's year-to-date gains hold, the silver miners ETF will close on an annual basis for the third time in four years.

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