By Kevin Grewal, editorial director at www.SmartStops.net
NEW YORK (
) -- In the past year, silver outperformed gold, posting exceptional gains. There are many indicators suggesting that its upward trend will likely continue well into the current year.
Silver's appeal and exceptional performance will likely be driven by three factors. The first being an increase in demand by investors; the second, an increase in industrial demand; and finally, the supply for the precious metal is slowly diminishing away.
Silver offers many of the same benefits as gold, including being a play against the dollar and offering protection against inflation. Additionally, many metals experts state that silver is not considered to be overbought when compared to gold and in fact, valuations are highly attractive when compared to gold, making it more attractive to investors.
As economies around the world continue to grow and emerge out of recessions, the industrial applications of silver will likely add to its attractiveness. In fact, the latest data suggest that nearly 55% of total silver fabrication is used for industrial purposes. The reason behind this is that silver has unique industrial characteristics that prevent it from corroding, allow it to maintain a luster with minor polishing and enable it to have a high conductivity rate. As a result, the metal is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards.
Additionally, the precious metal is used as an additive to the lining of some refrigerators, for food storage containers, in hospital equipment and in alternative medicine as an antiseptic and to treat fungal infections. Both the tech and medical device sectors are expected to see growth in the coming year, which will likely spur demand of silver.
From a supply perspective, the United States Geological Survey states that silver is nearly twice as rare as gold in the long term because it is not recycled at the same rates as gold. Also, at current consumption rates, all of the silver that is in the earth's crust will diminish away in the next 25 years. This will likely put supply pressures on the price of the metal.
A combination of these factors will likely provide support to silver prices; the following ETFs should reap the benefits:
- iShares Silver Trust (SLV) - Get Report, which physically holds silver bullion and closed at $18.27 on Wednesday.
PowerShares DB Silver Fund (DBS) - Get Report, which holds futures contracts in silver and closed at $33.16 on Wednesday.
PowerShares Ultra Silver (AGQ) - Get Report, which seeks to gain twice the performance of silver bullion and closed at $68.06 on Wednesday.
When investing in these equities, it is important to consider factors that could potentially hinder the price of silver, like an unexpected surge in the dollar. A good way to protect against these factors, as well as the inherent risks involved with investing in equities, is through the use and implementation if an exit strategy, which triggers price points at which an upward trend in gold could potentially be coming to an end.
According to the latest data at
, the price points for the aforementioned ETFs: SLV at $17.49; DBS at $32.03; AGQ at $56.38. These price points fluctuate on a daily basis and reflect changes in market conditions. Updated data can be found at www.SmartStops.net.
Written by Kevin Grewal in Laguna Niguel, Calif.
Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.