The past few months have seen gold prices shoot through the roof, bringing gold ETFs along for the ride. The go-to gold fund, SPDR Gold Trust (GLD) started the year off around $138, and is now trading at about $173.50, marking a 25.7% increase. With gold briefly eclipsing the $1,900 per ounce mark in early September, the precious metal hitting $2,000/oz. seems like a matter of when, not if. But while gold continues to trend back and forth as equities ping pong around a number of issues, many investors and analysts have developed strong opinions as the whether or not the asset class is bubbled, or only just begun its meteoric rise [see also Three Ways To Play $2,000 Gold].
As experts have argued over gold’s next move, many are citing harsh economic conditions for the main culprit of why gold has a major upside potential. It seems that most of 2011 has been gobbled up by gold headlines, as the metal was smashing record prices on a monthly basis. A number of investors quickly scrambled in to cash in on gold’s success, all the while, gold’s sister metal, silver, was flying largely under the radar. Though silver got a fair amount of attention early on in the year, it has been all gold since. However, investors may want to rethink this, and give the white metal a closer look as we approach the end of the year [see also Three Reasons Why Gold Is Overvalued].
The Silver Case
When it comes to safe haven investments, silver makes for a promising investment; the metal comes in at a much cheaper price than gold in per ounce terms and also has a lot more practical uses in the industrial world. Another strong argument for silver is the metal’s current underlying price; while silver is seeing some of its highest prices per ounce in its history in nominal terms, it still has a long way to go to meet its historic highs in inflation adjusted terms. Silver prices hit $48 per ounce in the early 1980s, which is equivalent to $135 in today’s dollars. With the precious metal currently sitting at just under $40 per ounce, the upside potential is still huge.
When it comes to performance, gold has been ousted by silver ETFs, a number of which have outperformed GLD on the year. Below, we outline three silver ETFs that have beat out gold in 2011 for investors looking to make a play on this metal:
Physical Silver Shares (SIVR)
This products is offered by ETF Securities and is designed to track physical silver bullion. Physically-backed ETFs have been an extremely popular way for investors to gain access to commodities as these products help to nix issues like contango and other complexities that are handcuffed to futures trading. SIVR has an average daily volume of about 550,000 and nearly $790 million in total assets. When it comes to performance, SIVR reigns supreme, as the fund has raked in roughly 30.8% for its investors, proving silver to be the better performing metal thus far in 2011 [see also Dividend Special: Top Companies In Every Major Commodity Sector].
Silver Trust (SLV)
This iShares product is perhaps the most popular way for investors to gain exposure to physical silver as the fund has an average daily volume of 34.5 million shares and total assets nearing the $13 billion mark. As far as liquidity and ease of trading go, SLV is king. The ETF, however, charges an expense ratio of 50 basis points in comparison to SIVR’s 30bps, suggesting long-term investors may be better served by the ETF Securities fund instead. Thus far in the year, SLV has gained 30.5%. This result may be confusing at first being that SIVR and SLV track the exact same asset but have slightly differing returns. The most likely reason for this is the 20 basis point discrepancy between the overall fees for the two funds, and the compound effect of this throughout the year.
E-TRACS UBS Bloomberg CMCI Silver ETN (USV)
This ETN takes a different approach to silver investing as it employs a strategy that measures the collateralized returns from a basket of silver futures contracts. The commodity futures contracts are diversified across five constant maturities from three months up to three years. USV has been around since early 2008 and charges an expense ratio of 0.40%. Overall in 2011, this futures-based fund has posted gains of 29.9% for investors who sought to avoid physical exposure [see also Powerhouse Producers: Cocoa, Platinum, Rare Earth Metals].
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Disclosure: No positions at time of writing.