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Why These 2 Risky Silver ETFs Matter Now

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Why These 2 Risky Silver ETFs Matter Now

Extending a stellar run for silver and the related exchange-traded funds, the iShares Silver Trust (NYSE: SLV) surged nearly 18% last week.

What Happened: That only scratches the surface of last week's silver ebullience. Investors poured $764.23 million into SLV, the largest silver-backed ETF, and the metals two-day price move on July 21 and July was 15.66% – its fourth-best two-day move on record.

Not one to shy away from volatility, big moves in silver open the door to opportunities with the ProShares Ultra Silver (NYSE: AGQ) and the ProShares UltraShort Silver (NYSE: ZSL).

AGQ attempts to deliver double the daily returns of the Bloomberg Silver Subindex while the bearish ZSL looks to deliver double the daily inverse returns of that index.

Why It's Important: Like all leveraged ETFs, AGQ and ZSL are short-term instruments and they don't always do what they're supposed to do. For example, the bullish AGQ jumped 34.26% last week, which is close to but not exactly double the price performance of the white metal. However, the bearish ZSL lost less than 29% last week.

If history is any guide, both AGQ and ZSL are worth considering over the near-term. Following the aforementioned epic two-day pop by silver last week, Cornerstone Macro Chief Market Technician Carter Worth took to Twitter with some background on big two-day moves in silver.

Excluding last week's move, the top 15 two-day moves in silver resulted in just four instances of the metal trading higher a week later and just five of silver residing higher a month later, according to Worth's data.

The median loss a week later was 1%, expanding to 2.27% a month out, potentially boosting the near-term case for ZSL.

What's Next: History isn't guaranteed to repeat, which is to say traders shouldn't get too heavy in ZSL nor should they ignore the bullish AGQ.

Some traders are bullish on silver's near-term prospects, with some forecasting gains of up to 30%, fueled by accommodative monetary policy by the Federal Reserve and other central banks. Soaring demand for renewable energy products, a major end market for silver, bolsters the industrial case for the metal.

“Solar tracker shipments reached new record levels in 2019 with shipments exceeding 31GW globally, an increase of 55 percent year-on-year,” according to IHS Markit.

“Exceptional demand in the United States, as well as multiple 1 GW plus markets in Brazil, Mexico, Chile, Spain, and Australia, helped propel shipments to new heights. Furthermore, for many suppliers active in the United States the stepdown in the investment tax credit (ITC) and the willingness of developers to safe harbor for projects yet to be built has meant that 2020 started very strongly for numerous suppliers.”

 

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