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Global X Silver Miners ETF (SIL) May Be The Best Option for the Sector
Pinnacle Digest writes: Over the last decade, silver has been one of the world’s best performing assets. Just eleven years ago it traded for $4 an ounce. It currently trades for over $30 an ounce.
In his latest research report on the silver market, Scott Wright at Zealllc.com explains how silver has increased 1094% from its 2001 low to its 2011 high. “There’s no arguing that silver’s secular bull has been spectacular” stated Wright.
Wright goes on to explain that while silver, the physical metal itself, has been on an amazing ride over the last decade, silver stocks have performed even better.
Wright explains “Though there is no silver-stock index that has a long-enough history to give us a direct comparable to silver over the course of this bull, the next-best comparable is the performance of gold stocks given their tight correlations. And the venerable HUI gold-stock index is probably the most conservative metric (the HUI is comprised of the world’s largest gold stocks, along with a couple of large silver stocks).”
Using the HUI as an example: It has outperformed physical bullion by nearly 3 to 1 from 2001 low to 2011 high. That amount (3 to 1) is precisely the historic leverage ratio for precious metal stocks to the physical. Many people have complained that junior gold or silver stocks haven’t rallied as they should over the last two years, during a period of dramatic increase for precious metal prices. However, if you are only looking at a short duration of time, such as two years, it gives an inaccurate reading.
Much of the gains, over the past decade bull market, in gold and silver stocks occurred prior to 2008; so it’s no wonder these stocks, since 2010, have been performing rather weak in comparison to the precious metals. However, if you are of the same mind as our team at Pinnacle, then you believe the tide is turning once again. Gold and silver stocks are on the verge of a breakout.
So how do you take advantage of this potential shift?
If you are looking to enter the silver equity market, Scott Wright of Zealllc.com has a great option for you - and it’s a relatively new way of playing the sector. Wright states “Thankfully there’s a product that has come to market recently that does offer investors some semblance of sector-level performance for silver stocks, the Global X Silver Miners ETF (SIL). Global X Funds has been a huge innovator in the ETF realm in recent years, especially when it comes to commodities stocks. Its unique approach gives investors easy access to small commodities sectors and subsectors. And the first-of-its-kind Silver Miners ETF is a godsend to the tiny silver-stock sector.”
As Wright explains, SIL’s goal is to mirror the performance of the silver mining industry (ie the producers, explorers and even refiners). It broadly covers the entire industry, which in our view is a great vehicle for investors looking for exposure to silver. Another benefit of the SIL ETF, according to Wright is “it even offers geographical diversification, which is a big deal in the mining industry.”
Given that silver producers, explorers and even the physical metal itself are much less liquid than say, for example, gold producers, explorers and the physical, there is another huge benefit to SIL. Institutions can purchase this ETF because it meets the necessary market cap and liquidity thresholds many of them have, which can prevent them from participating in a lot of silver equities on their own. And without that liquidity, often times, volatility increases in many of the silver equities. So SIL can provide more liquidity and potentially much less volatility than most silver equities - a nice selling feature in today’s environment.
Click here to read Scott Wright’s entire breakdown of SIL.