Investors Shouldn’t Forget About Silver ETFs

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Gold bullion usually gets all the attention in the precious metals market, but commodity traders shouldn't forget about silver and related ETFs.

"Silver’s discount to gold may spark investor bargain buying. Continued strength in the industrial cycle and a constrained mine supply may keep the metal in a supply deficit. Silver prices may reach$19-20/ounce (oz) range by year-end," Maxwell Gold, Director of Investment Strategy for ETF Securities, said in a research note.

Comex silver futures were hovering around $16.9 per ounce Wednesday.

Poor's man gold has been underperforming its yellowy peer, but silver may be setting up to be a leader this year, Gold argued. Specifically, the ETF Securities strategist pointed to fundamental drivers that could support silver's prices, including rising global manufacturing and industrial production - unlike gold, silver enjoys robust industrial demand.

Furthermore, inflation is also ticking higher as reflected by rising inflation expectations, increased fiscal spending, a tighter labor market with higher wages and a depressed U.S. dollar. Commodities, notably precious metals, have historically acted as a hedge against inflation, helping investors maintain their purchasing power.

"Given silver’s large cyclical demand rooted in industrial applications, silver prices may respond more strongly than gold to building inflationary pressures," Gold said.

Meanwhile, on the supply side, production remains constructed by lower capital expenditures by miners. Production has experienced year-over-year declines, and the trend may continue into 2018 given the depressed mining activity on current market supplies.

"A decline in mining capex may keep silver structurally undersupplied, while a normalization of inventories may also be price supportive," Gold added.

As investors consider alternative assets to diversify a traditional portfolio, especially in extended bull conditions in the equities market, one may look to something like the ETFS Physical Silver Shares (NYSEArca: SIVR) to gain exposure to the silver market.

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

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