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Will Silver ETFs' Dismal Run Continue in 2019?

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Strength in the U.S. economy and the resultant rise in interest rates and the greenback hampered metal ETF investing in 2018.Gold bullion ETF SPDR Gold Shares (GLD - Free Report) has declined 4.5% in the past year (as of Jan 18, 2019) while silver bullion ETF iShares Silver Trust (SLV - Free Report) has lost 10.4% past year. In fact, 2018 was silver’s worst year in three, per Bloomberg.

The rough patch continues in 2019 too. The bullion ETF is down 1% already compared with only 0.2% decline in the gold bullion ETF. Let’s take a look what’s keeping the shine off the silver ETF in recent months.

There are high chances that silver will lag gold in the near term. Here’s why.

Global Growth Worries

Silver has high usage in industrial activities with about 50% of total demand coming from industrial applications. With most key economies including China, Japan and the Eurozone reeling under pressure, and widespread global growth concerns, demand for silver has taken a toll.

Moreover, among the other industrial metals, nickel, copper, aluminum and palladium have been displaying strong trends this year and are in the green. So, silver has basically failed to cash in on whatever demand is left in the industrial arena.

Subdued Safe-Haven Demand

Since markets gained materially this year on dovish Fed minutes and signs of improvement in U.S.-Sino trade relations, there has hardly been any demand for safe-haven asset. If at all there is any, gold is capitalizing on the same better than silver.

Other Factors

“There’s absolutely no shortage of silver around,” per Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets.Moreover, if the Fed remains steady and takes a patient approach on the future monetary policy, the equity market should stay steady. This, in turn, would curb demand for commodity investing.

Any Hopes Ahead?

There are signs that the United States and China may reach a trade deal soon. If this happens, demand for industrial metals would rise, easing global growth worries to some extent (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

Inverse ETFs in Focus

Against this backdrop, investors can tap inverse silver ETFs as long as trend is in their favor. Below we highlighted a few ETF options.

VelocityShares 3x Inverse Silver ETN – Up 3.30% YTD

It is linked to the S&P GSCI Silver Index ER is senior, unsecured obligations of Credit Suisse. It seeks to provide inverse exposure to 3x the daily performance of the S&P GSCI Silver Index. It provides traders to express their market views on the COMEX silver future. It charges 165 bps in fees.

ProShares UltraShort Silver (ZSL - Free Report) – Up 2.50%

The ProShares UltraShort Silver seeks daily investment results, before fees and expenses that correspond to twice (200%) the inverse (opposite) of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. The product charges 95 bps in fees.

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