Forget Gold, Why Your Portfolio Needs Silver (SLV, SIL, SLW, AG, GLD, AGQ, ZSL)

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April 2, 2012 10:12am NYSE:AGQ NYSE:GLD

Jared Cummans:  For the past few years, the investing world has turned gold into its darling commodity, as its meteoric rise was well-documented and thrust into the forefront of major media and news sites. All the while, its sister metal silver received very little attention by comparison. Now, many see gold

as a great portfolio diversifying agent, a sound inflation hedge, as well as a great place to grow initial capital. While gold may be poised for a bright future, silver may present an even greater opportunity that investors would do well not to ignore [see also 25 Ways To Invest In Silver].

The Silver Side

From an investment standpoint, there are a number of factors that make a compelling argument to allocate to silver over gold. First and foremost, silver is a much more practical metal. Silver has thousands of industrial uses that make it a key element in the production of a number of products. For starters, this commodity has the highest electrical conductivity and the highest thermal conductivity of  all the metals. This combination ensures that silver finds its way into a  multitude of uses ranging from jewelry and coins to medicine and  electrical wiring. With a presence in the industrial world, silver could theoretically appreciate more than gold as the world continues to expand and urbanize, especially in emerging markets [see also Ultimate Guide To Silver Investing].

One of the biggest reasons that gold has been in the limelight is its recent historical highs; the precious metal is currently sitting around 15% below its all time high. Silver, by comparison, is over 65% below its highest price ever (which came roughly 30 years ago) [compare the two metals with our Precious Metals Heatmap]. That suggests that silver has a greater potential for growth than gold and may be a better long term buy for the time being. Also, when it comes to precious metals investing, there tends to be a fair amount of skepticism and paranoia around the investing universe. Gold, for instance, has been confiscated by the government once upon a time, leaving many investors with fears over the safety of their holdings. If you fall under the latter category, never fear, silver has yet to be confiscated by our government.

As far as historical performance is concerned, it would be easy to cherry pick time periods which silver has outperformed gold and vice versa, but working off of 2012 data, silver is up roughly 14%, while gold lags behind with gains of 5.6%. For investors looking to make a play on this precious metal, we outline three options below that cover a wide base of ways to allocate to silver [see also 12 High-Yielding Commodities For 2012].

  • Silver Trust (NYSEARCA:SLV): This ETF is one of the most popular in the world, with over $10 billion in assets and an ADV topping 23 million. SLV invests in physical silver bullion, representing one of the safest and easiest ways to make a play on the commodity. Given its physical nature and high activity, this fund could be an integral part of a long-term portfolio or an effective trading instrument. SLV is up over 130% over the trailing three years.
  • Silver Miners ETF (NYSEARCA:SIL): For those looking to invest in silver equities, this ETF holds a basket of miners that are dedicated to the precious metal. As a mining product, it is important to note that SIL will offer a leveraged play on silver as its underlying holdings typically have high betas. If you are uncomfortable with the ETF structure or are looking for a firm to single out, companies like Silver Wheaton (NYSE:SLW) and First Majestic Silver (NYSE:AG) are good places to start.
  • SI Silver Futures (COMEX): For active traders looking to make a speculative bet on silver or simply make a short-term play, the COMEX futures market is full of choices. There are a wide range of futures contracts and options to make bets on silver, with May contracts being the most active for the time being.

Related: ProShares Ultra Silver (NYSEARCA:AGQ), ProShares UltraShort Silver (NYSEARCA:ZSL), SPDR Gold Trust (NYSEARCA:GLD).

Written By Jared Cummans From CommodityHQ  Disclosure: No positions at time of writing.

CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.


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