The more the U.S. economy is regaining the ground lost in the recession and the greenback is crawling closer to the seven-year high mark, the more terrible is the impact on a variety of safe haven-oriented products, such as in the precious metals.
The stupendous rally in the dollar forced the gold bullion to dive below 1,200 an ounce at the end of October. The same was the fate for silver which plunged to the 55-month low.
An ascent in the U.S. economy which helped the Fed to seal the fate of the QE program and push the bank toward the first rate hike after eight years plus a sluggish global economy contributed to the slump in silver prices. The manufacturing data for the Euro zone was soft in October. Though data from China came in at a three-year high, things are yet to improve in the world’s second largest economy.
Notably, 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., faltering on manufacturing activities, silver might continue to suffer big time in the coming days.
If these issues were not enough, the Fed seems due for a rate hike next year. This in turn will provide another round of strength to the U.S. dollar against a set of currencies, marring the prospect for precious metal investing (Read: The Comprehensive Guide to Silver ETF Investing).
In any case, the white metal seems a more volatile option than the yellow metal, probably due to its low price point. As a result, silver prices are often more hit than gold when things are against precious metal investing, like they are now. As of October 30, silver prices fell to a more-than-four-year low of $16.33 on an elevated trading, per Bloomberg.
This slump in the silver market also spreads into the precious metal mining space. Mining ETFs often play as a leveraged version of the underlying metal.
The case appears to hold for silver as well. While the biggest silver ETF, Silver Trust ETF (SLV) has lost over 20% in the last 13 weeks (as of November 3, 2014), silver mining ETFs including Global X Silver Miners ETF (SIL), iShares MSCI Global Silver Miners Fund (SLVP) and FactorShares PureFunds ISE Junior Silver ETF (SILJ) shed about 34%, 30% and 38% respectively during the same time frame.
The Zacks Industry Rank of the silver mining industry is presently placed in the bottom 43%. Investors should note that all silver mining ETFs are down in the range of 12% to 20% so far this year.
A Technical Look at Silver Mining ETF – SIL
If we take a look at SIL – a popular silver mining ETF on the market with AUM of $172.2 million and a trading volume of roughly 300,000 shares a day – the downtrend is more visible. The fund was down over 7% in the last five days (as of November 3, 2014).
The Relative Strength Index for SIL is presently 14 suggesting that the fund is in an oversold territory.