Discouraging Data for Silver ETFs

MarketsETF Trends

This article was originally published on ETFTrends.com.

The iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR) rallied on Tuesday, but are still saddled with year-to-date losses. Some recent data points indicate the white metal could be vulnerable in the near-term.

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SLV and SIVR, which are backed by physical silver bullion, have traded slightly lower since the start of the fourth quarter and year-to-date performances for the silver ETFs are well behind competing gold funds.

Silver could get another boost if gold prices start rebounding in earnest. Indian demand is vital for gold because the country is the second-largest buyer of the yellow metal behind China. India, one of the world’s largest gold consumers, could be set to lower its import tax on bullion, which could be major catalyst for gold prices. Still, some challenges remain.

“Per the latest Commitments of Traders (CoT) data, large speculators are now net short silver for the first time in more than three years, according to Schaeffer's Quantitative Analyst Chris Prybal. Perhaps that's because the malleable metal -- as measured by the iShares Silver Trust (SLV) -- just wrapped up its most bullish time of year, historically. Whatever the motive, silver futures tend to underperform after large speculators turn bearish on the commodity,” according to Schaeffer's Investment Research.

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An expanding global economy could also bolster consumer demand for jewelry and electronics, which could provide a floor for gold. Meanwhile, rising inflationary pressures will also rise in an expanding economy.

The poor man’s gold may also regain its luster as an improving economy would also trigger increased industrial demand for silver.

“CoT large speculators just went short on silver for the first time since October 2014. After that instance, it was a rough go for silver futures, which were down across the board looking six months out,” adds Schaeffer's. “In fact, there were two times in 2014 when this group turned bearish on silver, and prior to that you'd have to go back to 2003. Looking at data since 1986, and using only one signal per month, this is just the 16th time this group has turned short on the malleable metal, per Prybal.”

Investors can tap silver equities with the Global X Silvers Miners ETF (NYSEArca: SIL) and related ETFs. SIL, the largest silver miner-related ETF, tries to mirror the Solactive Global Silver Miners Total Return Index, which is also comprised of global silver miners.

For more information on the silver market, visit our silver category.

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