Silver Can Shine for ETF Holders

NEW YORK (TheStreet) -- Although gold continues to grab most of the attention in the precious metals world, silver, its less glamorous sister, may be more appealing and for good reason.

First off, silver has many more uses than gold does. It is used for numerous industrial purposes and nearly 55% of total silver fabrication is used for industrial purposes. Silver is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards, as well as in the lining of refrigerators, for food storage containers and for water purification. Additionally, the metal can be used as an antimicrobial to fight bacteria and as an antiseptic to treat fungal infections. Silver's industrial uses even span to the solar energy industry. As economies around the world continue to expand, the industrial demand for silver will likely follow.

Another force that is likely to support silver is that valuations appear to be strong. In a nutshell, silver is cheap and depressed on a historical basis when compared with gold. Gold is trading much higher than its long-term ratio of 16 times the price of silver, indicating that there is plenty of room for silver prices to run. Additionally, silver is nearly 70% below its all-time high in 1980 and well below its near-term high of $21 an ounce seen in 2008.

Lastly, diminishing supply is likely to bolster the metal. According to a study conducted by the United States Geological Survey, silver is nearly twice as rare as gold in the long term because it isn't recycled at the same rates as gold, and at current consumption rates all of the silver that is in the earth's crust will be gone in the next 25 years.

A combination of these factors will likely provide support to silver prices and the following exchange-traded funds are likely to reap the benefits:
  • iShares Silver Trust (SLV), which physically holds silver bullion and closed at $17.24 on Thursday.
  • PowerShares DB Silver Fund (DBS), which holds futures contracts in silver and closed at $31.14 on Thursday.
  • ProShares Ultra Silver (AGQ), which seeks to gain twice the performance of silver bullion and closed at $55.55 on Thursday.
  • Global X Silver Miners ETF (SIL), which gives exposure to companies which are involved in mining, production and exploration of silver. SIL closed at $14.36 on Thursday.

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 to 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 SmartStops.net, the price points for the aforementioned ETFs are: SLV at $16.80, DBS at $30.86, AGQ at $54.70 and SIL at $13.31.

Written by Kevin Grewal in Houston

Grewal has no positions in the securities mentioned.

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.

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