Silver prices and the iShares Silver Trust (SLV) — a popular silver ETF which tracks physical silver – continue their rollercoaster ride so far this year. As of now, silver and the SLV ETF are down almost 30% year-to-date.
But expectations were high for the silver ETF heading into 2013. In fact, Business Insider ran the headline: “2013 Will Be A Huge Year For Silver – Analysts, Traders And Investors Agree.”
As seen by the performance of both the metal and the silver ETF, it clearly didn’t quite work out that way.
A Tough Time for the Silver ETF
Bloomberg had surveyed 49 silver experts at the end of 2012 and the median estimate for growth in silver prices this year was 29%. That’s a relative miss of 58 percentage points. So what happened to derail silver prices and by extension, the silver ETF?
Well, analysts had expected increased demand for the metal as investors moved away from gold and into silver. See, silver was and still is undervalued in comparison to gold … which should have bode well for the SLV ETF. Plus, as the global economy gets stronger, the industrial use of silver increases. That puts even more pressure on supply and, in theory, drives prices and the silver ETF up even further.
But instead, safe-haven investments simply haven’t been the place to be right. Stocks are sizzling and, until equities slow, there’s little chance for the SLV ETF to gain much ground.
Silver (and the silver ETF) have been struggling for some time, though. Silver prices hit an all-time high of $55 back in 1980, and the next highest point came in March 2011 when an ounce was selling for $46. But since the 2011 high, silver prices are down more than 50%. As a result, the SLV ETF achieved an ugly negative total return during that period.
If you look at a 28-year chart of silver prices, you can’t help but notice how deep this latest bear market is. It’s extended 30 months from the top through early November, and there’s been no comparable decline since 1985.
What’s Next for the SLV ETF?
Still, looking at silver’s chart going back to 1985, you can see that silver’s current price is slightly above $20 per ounce. That’s not half bad when you consider that it traded range-bound for 20 years (1985-2005) at prices between $5 and $10.
If you had bought silver just as it came out of its funk in 2005, you’d have doubled your money over eight very difficult years economically speaking. If you had bought in 1985 and sold in 2005, you made nothing.
What will happen next for silver and the silver ETF?
Three things can happen: First, silver and the SLV ETF could go on another 20-year flatline. Second, the metal and silver ETF could drop below $10 and go back to being range-bound in single digits. Finally, it could slowly start moving back toward an all-time high.
Two out of three of those options aren’t too bad and the likelihood of silver and the silver ETF (given demand) heading back to $5 any time soon seems remote. While experts like Warren Buffett think investing in gold is stupid, one reason is that you can’t really do anything with it. Silver, on the other hand, at least provides some tangible use beyond its speculative underbelly.
Therefore, if you must own a metal like gold or silver, the SLV ETF is a solid alternative. At current prices, I’d say this silver ETF is a buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.