The renewed strength in the U.S. economy and the resultant rise in interest rates and the greenback are likely to influence all investment decisions in 2017. Especially, commodity investing, particularly precious metals that have enjoyed a bull run this year (on a softer U.S. dollar) may be at risk next year due to the possibility of Fed’s policy tightening.
Investors should note that SPDR Gold Shares
GLD is up about 21% this year (as of November 1, 2016) while iShares Silver Trust SLV has returned an astounding 32%. Barring Fed hike related worries, there are several favorable factors to keep precious metals afloat in 2017 (read: Are Gold ETFs Set to Shine Again?).
Among the tailwinds, the possibility of a slower Fed hike trajectory, overvaluation in U.S. stocks, global growth concerns and slowly rising inflation should bolster gold — the safe haven asset or inflation-protected security.
Plus, gold is viewed as a beneficial investment if Republican candidate Donald Trump wins. His policies are apparently more ‘inward looking’ as per ABN Amro. According to the research organization, Trump’s policies may hinder U.S. growth and thus may cause an upheaval in the domestic market, propelling this safe-resort higher (read:
Does The Donald Hold The Trump Card for Gold ETFs?)
But there are still high chances that silver will maintain the lead over gold in the next year. Let’s tell you why (read:
Forget Gold; Buy Silver Mining ETFs Instead). Uptick in Manufacturing Activity
Silver has high usage in industrial activities with about 50% of total demand coming from industrial applications. With most of key economies coming up manufacturing data in the growth zone lately, silver definitely has some reasons to cheer for (read:
Global Manufacturing in Growth Zone: ETFs to Watch).
Particularly, Chinese and Japanese manufacturing PMI came in at a two-year and nine-month high, respectively. U.S. manufacturing activity is also expanding giving cues of stabilization. Markit indicated that the Euro zone’s manufacturing PMI was 53.3 in October, up from both the September data and analysts’ expectation of 52.6.
Solid Zacks Rank
Investors should also note that the
silver mining industry is in a decent position with the Zacks Industry Rank in the top 24%, at the time of writing, whereas the gold mining industry is in the bottom 18%. Favorable Demand Supply Scenario
CPM Group, silver mining production is likely to decline for the first time since 2011. As per the source, almost half of the world's silver output is generated as a byproduct of mining copper, lead and zinc. And a significant cut in production of these base metals due to global growth concerns will likely translate into lower silver production. As per an article published in barrons.com, there was a 20% year-over-year fall in miner capex six months ago.
In such scenario, ETF Securities sees silver prices between $22 and $24/oz in 2017, implying a 24% gain from the mid-point of the range while it expects gold price to be at $1425, up over 7.1% from the close of November 2, 2016.
ETFs in Focus
Investors may thus play ETFs like
iShares Silver Trust , SLV ETFS Physical Silver Shares ( SIVR Quick Quote SIVR - Free Report) and PowerShares DB Silver ET F DBS . They can also try out silver mining ETFs including Silver Miners ETF SIL, iShares MSCI Global Silver Miners ETF ( SIVR Quick Quote SIVR - Free Report) and PureFunds ISE Junior Silver ETF SILJ. Having said this, we would like to note that silver is generally more volatile in nature than gold and thus investments in it require a risk appetite. Want key ETF info delivered straight to your inbox?
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