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Will Silver ETFs Outshine Gold ETFs Ahead?

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Precious metals like gold and silver have been rallying lately. This is because investors have been seeking safe-haven investments amid growing risks emanating from the banking crisis in the United States and Europe, high inflation, hawkish central banks, fear of prolonged global growth slowdown and the ongoing uncertainty surrounding U.S.-China relations as well as the Russia-Ukraine war.

In the latest statement from the Federal Open Market Committee (FOMC), the Fed hiked interest rates by 25 basis points (bps), to a funds range of 4.75%-5.00%. The move was largely expected. However, the Fed’s language in its statement grew notably milder from the last meeting, even as it clearly stated that inflation is still “elevated.” The Fed also indicated that “some additional policy firming may be appropriate.”

A softening in the Fed’s hawkish tone and the resultant decline in U.S. rates should weigh on the dollar against a basket of currencies, raising the precious metals’ attractiveness as these do not pay interest like fixed-income assets. Notably, the U.S. dollar is now at a seven-week low. Analysts believe that precious metal prices will witness momentum.

The Fed indicated that further increases in borrowing costs might be postponed (or there may be just one more rate hike worth 25 bps this year) due to the recent failure of two U.S. banks. A low-interest-rate environment makes non-yielding bullion an intriguing bet. Plus, gold is traditionally viewed as an inflation hedge and thus is well-positioned to take advantage of the recent spike in global inflation.

SPDR Gold Shares (GLD - Free Report) has risen 8.1% in the past month, while iShares Silver Trust (SLV - Free Report) has gained 4%. But in the past five days, SLV has added 5.8% versus a 2.7% uptick in GLD (as of Mar 22, 2023).

What to Buy Ahead? Gold or Silver

We believe that gold has run up a little bit higher. It’s just 1% off from its 52-week high whereas silver is still 13% off its 52-week high. So, the poor man’s gold has more room to run than the yellow metal. Moreover, the operating backdrop is more favorable for silver as it has high usage in industrial activities. About 50% of the total demand for silver comes from industrial applications.

The Fed is likely to take less-hawkish actions, going forward. This should bolster industrial activities. Manufacturing activity in China expanded and logged its highest reading in nearly 11 years. China’s reopening following the COVID-led lockdown is a huge plus for the manufacturing sector.

Growth in the global solar PV industry and new sources of demand for sensors used in IoT are providing a boost to silver demand. The recent emergence and faster rollout of 5G globally is another positive for silver. The electronic components that enable 5G technology depend on silver greatly. Silver’s role in electronic applications used in 5G is forecast to rise significantly.

Bottom Line

If we go by the relative strength index (RSI), SLV has an RSI value of 64.31 while GLD has an RSI value of 66.95. An asset is usually considered overbought when the RSI is above 70 and oversold when it is below 30.

Hence, the value indicates that while both ETFs are in high momentum, silver has good chances of outperforming gold. But if the economic backdrop remains this edgy, global growth slows down and inflation remains hot, gold will outshine the manufacturing metal silver.

ETFs in Focus

Apart from the largest ETF SLV, investors can also bet on the likes of Aberdeen Standard Physical Silver Shares ETF (SIVR - Free Report) , Invesco DB Silver Fund (DBS) and ProShares Ultra Silver (AGQ - Free Report) to realize gains in silver.

And for gold ETFs, investing options include the likes of iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust (GLDM - Free Report) , abrdn Physical Gold Shares ETF (SGOL - Free Report) and ProShares Ultra Gold (UGL - Free Report) .

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