Silver Or Gold ETFs: Which Is The Best Bet For July?

After three years of losses, the first half of 2016 brought unparalleled gains for gold ETFs. The metal was on a tear on safe haven demand and dovish central banks across the developed economies to ward off growth issues. A rush to safety for the most part of 1H16 were triggered by the Chinese market upheaval, a 12-year low oil price in the first quarter and a major event like Brexit at the end of the second quarter (read: Top ETF Stories of the First Half of 2016).

Almost the entire world speculated the deepening of global growth worries as a fallout of Brexit. As a result, risky assets fell out of investors’ favor and safe haven assets like gold gleamed. Plus, the Fed’s dovish stance throughout 1H16 stalled the strength in the greenback, spreading joy across broad-based commodity investing.

Gold bullion ETF SPDR Gold Shares (NYSE:GLD) (LAGOS:GLD) is up over 26% so far this year (as of July 1, 2016) as the metal has experienced the “best two quarters” in nine years. The road ahead is likely to be smooth as the Fed is expected to stay put in the near term thanks to the likely contagion of global issues like Brexit (read: 1H ETF Asset Report: Gold Glows; Equities Fade).

Sliver ETF to Outshine Gold in July?

This white metal has seen extremely solid trading in recent times and is on its way to a 2-year high. The drivers behind the silver surge were more or less similar to gold. The metal crossed the $20-dollar level lately for the first time in nearly two years. The jump was so acute that silver has actually breezed past the yellow metal in recent trading.

The silver bullion ETF iShares Silver Trust (NYSE:SLV) SLV is up over 42% in the year-to-date frame (as of July 1, 2016). So will July be a better month for silver than gold?

Industrial Demand to Pick Up: Silver has high usage in industrial activities with about 50% of total demand coming from industrial applications. With China, the biggest industrial fabricator after the U.S., still struggling on the industrial sector, silver has definitely lost some shine. But a pickup in industrial activities in other corners of globe is expected ahead thanks to a host of stimulus measures.

Particularly, the U.S. factory activity index jumped to the 16-month high in June, giving room for rally to silver. Probably, such sound manufacturing data pushed up SLV by 4.9% on July 1 – the day manufacturing data released. The fund added over 0.2% after hours. Notably, the Euro Area manufacturing index measured by Markit also speaks of solid trends.

More Price Gains in Store for Silver? Investors should note that silver was a bit late in joining the precious metal party this year. Probably this is why, when GLD added just about 1.7% last week (as of July 1, 2016), SLV surged over 11%. Investors should also note that silver represented its “best weekly gain since August 2013” last week.

So, due to its late entry into the rally, a leg-up in silver is likely to be higher than gold, according to some analysts. After such a stupendous surge in gold, many investors would like to bet on its low-priced cousin. Also, many investors view silver as a leveraged play of gold, as per ETF Securities.

Decent Industry Rank for Silver: Investors should also note that the silver mining industry, at least in terms of its Zacks Industry Rank, is in a decent position being ranked in the top 5% overall, against the top 38% rank possessed by the gold mining industry. Many silver mining companies are presently top rated as per the Zacks methodology, at the time of writing.

Favorable Demand Supply Dynamics: As per CPM Group, silver mining production is likely to decline for the first time since 2011 while demand from industrial usage and jewelry is on its way to log the fourth successive increase in 2016. All these point to a brighter July for silver ETFs.

Play Silver Rally with These ETFs

Needless to say, silver ETFs are clearly outperforming gold from both a five-day and a one-month look. So, investors can play this bullish trend with the below-mentioned silver ETFs (read: Commodities Enter Bull Market: 6 ETF Winners).

iShares Silver Trust SLV

The fund tracks the price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase (NYSE:JPM) Bank. It is the ultra-popular silver ETF with AUM of over $6.1 billion and heavy volume of nearly 10.6 million shares a day. It charges 50 bps in fees per year from investors.

ETFS Physical Silver Shares SIVR

This fund has amassed $339.8 million in its asset base while trades in moderate volume of more than 100,000 shares per day on average. It tracks the performance of the price of silver bullion less the Trust expenses. Expense ratio comes in at 0.30% (see: all the precious metal ETFs here).

PowerShares DB Silver ETF DBS

This product provides exposure to the silver futures market rather than spot market and tracks the DBIQ Optimum Yield Silver Index Excess Return index. It is unpopular and illiquid with AUM of $23.5 million and average daily volume of more than 2,000 shares, increasing the total cost for the fund in the form of a wide bid/ask spread. DBS charges 79 bps in fees per year from investors.

Bottom Line

It is clear that buying pressure has been intense for silver recently compared to gold and that the most recent trend is extremely favorable for the commodity given the decline in dollar, global economic woes, and political uncertainty. Additional buying could be in the cards for the silver space should global manufacturing sector continue to escalate.