Like gold, silver is having a nice run, and investors are taking notice.
The iShares Silver Trust ETF (SLV) moved up 9% last week, while the SPDR Gold Shares ETF (GLD) ticked up 2%.
ETF Securities recently focused on the precious metal's changing outlook in its newsletter Silver Shines as Gold: Silver Ratio at 3-Year High Attracts Investors.
To understand the major factors driving the uptick in silver, ThinkAdvisor spoke with Mike McGlone, CFA, FRM, director of U.S. research for ETF Securities in New York.
Gold-to-Silver Price Ratio
This ratio can give investors a sense of relative valuation.
Before 2008, it took roughly 50 ounces of silver to buy one ounce of gold, says McGlone. During the recent economic crisis, the ratio increased to 80.
As of early August, the ratio was 66-to-1.
At that level, says McGlone, it "looks like silver at 66 is generally pretty cheap vs. gold, or you can say gold is rich vs. silver."
Price Chart Action
The ETFS Physical Silver Shares Fund (SIVR) peaked above $34 last October and dropped below $19 in late June. The shares rebounded slightly in late June and have since held steady just under $20.
Nonetheless, the 50-day exponential moving average is well below its 200-day average, and SIVR's price is still below both averages.
Still, McGlone says, this is just the short-term story.
"In the bigger picture, the market has been really rallying for the last, as we know it, 12 years," he explained. "So, we view, and certainly I view this as a bit of a correction within the trend."
McGlone hesitates to call silver oversold, but he points to historical price movements as an indicator of how that condition could develop.
Silver was down 34% since the beginning of this year in early August. If that result holds through year-end, it would be the third-worst annual price performance since 1955.
