How To Profit From Silver’s Shine (SLV, SIL, SIVR, GLTR)

In all my years (the total is quickly approaching a decade; where did the time go?!) trading and writing about financial markets, I’ve found myself frequently surprised about how people react to sensational headlines and rumors.

Maybe I shouldn’t be. As one of my trading mentors told me (I think he was paraphrasing from a book): The only thing about the market that doesn’t change is human behavior. Yep, we humans are a predictable bunch.

Take the recent case of JPMorgan and its alleged massive naked short position in silver. (This news was originally reported late last year). A commentator at a British newspaper basically attempted to start a cult movement by saying that JPMorgan was naked short (a short sale of contracts or shares that don’t exist) a whopping 3.3 billion ounces of silver.

Some headlines said this was more than all the silver in the world. I knew when I saw these headlines what was to follow: Emails telling me that I could bankrupt JPMorgan by buying silver.

I’m going to make life really simple and say just a few things:

  1. It is highly unlikely that JPMorgan was ever short that much silver.
  2. A good market conspiracy theory makes for entertaining reading.
  3. Forget entertainment, being short silver these days is messing with fire and there several excellent ETF options for being long the white metal.

To be sure, silver spent much of January in the tank, but thanks to Egypt, then Libya and so on in the Middle East, silver is back with a vengeance. I’m talking 31-year highs type of vengeance.

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Yes, silver has had a spectacular run, but with all this QE2 and fiat currency talk, do you really want to be long the dollar? I know I don’t. So a little (at least) silver exposure makes sense right now. Check out these ETFs:

  1. ETFS Physical Silver Shares (NYSE:SIVR): This fund backed by physical silver is a fairly new rival to the more heavily traded iShares Silver Trust (NYSE:SLV). Short-term traders can pick either fund, but long-term investors may want to opt for SIVR with its expense ratio of 0.3% compared to 0.5% for SLV.
  2. Global X Silver Miners ETF (NYSE:SIL): SIL is one of my personal favorites, but don’t consider that a “buy” recommendation because this ETF, which tracks an index of silver miners is NOT for the faint of heart. In its short lifespan, SIL has had multiple days of moves of 5% or more. Remember miners will fall harder than the underlying commodity when that commodity retreats.
  3. ETFS Physical Precious Metals Basket (NYSE:GLTR): This new ETF with an appropriate ticker will get you involved with physical holdings gold, silver, platinum and palladium in one fund. Silver is currently the second-largest holding. GLTR’s concept is an intriguing one, but note that the each of these metals is volatile on their own and putting four of them together escalates that volatility.

Of course, there are other avenues in the ETF universe for investors looking for silver exposure, but these are my personal favorites. No, being long some silver won’t bankrupt JPMorgan, but it might just fatten your own brokerage account.

Todd Shriber is an ETF fanatic, a former hedge fund trader, and a journalist. Todd started his professional career with Bloomberg News, where he covered banks, energy and technology.  After leaving Bloomberg, Todd became a trader at a California-based hedge fund where he specialized in trading financials, energy, basic materials, and ETFs.

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