iShares Silver Trust (SLV) and Market Vectors Gold Miners ETF (GDX) Rise

March 3rd, 2016 by

In the absence of a momentous realignment of the global economy, the U.S. and its international counterparts are stuck in stagnation. The precious metals market offers the perfect reflection of the negative sentiment of the global markets right now.

Source: etftrends.com

Source: etftrends.com

Even when the modest losses for gold and silver at the beginning of this week are accounted for, the direction of momentum for the metals remains strongly positive. Likewise, uncertainty and souring investor sentiment are driving negative momentum for equities and other risk assets.

The effect of this flight toward safe havens has been an increase in demand for coins made from precious metals as well as a surge in interest in exchange-traded funds backed by precious metals, like the Market Vectors Gold Miners ETF (GDX) and the iShares Silver Trust (SLV).

GDX Rides Rebounds for Mining Stocks

Barrick's Cortez gold mine in Nevada

Barrick’s Cortez gold mine in Nevada

The mining industry was a bit late to party that kicked off when the calendar turned to 2016, trailing behind the rally for precious metals prices. However, these miners have slowly picked up the pace and are now following the typical high-risk, high-reward trend seen with mining stocks. Over the past few weeks, the miners have actually outpaced the spot prices of the metals with outsized gains.

One of the main proxies for the performance of the mining industry is the Market Vectors Gold Miners ETF (GDX). Early on in February, short interest was exceptionally high for this ETF. These short positions are likely now left holding the bag, as GDX has continued to trade well above its 200-day moving average. Many investors like that GDX offers a blended mix of small, medium, and large mining firms. Shares were over 4% higher during trading on Thursday.

GDX 1-day price chart. Source: Google Finance

GDX 1-day price chart. Source: Google Finance

Don’t Forget About Silver

Similar to how the mining industry was trailing behind the broader bullion market, silver was seemingly lagging behind the gold price to start the year. The two metals were generally moving in the same direction, but silver’s rallies were less sustained and lost momentum more quickly than its cousin gold.

However, the conditions for silver to rebound came into alignment at the beginning of March. Not only was the sluggish price of a silver an opportunity for investors to get into the metal cheaply, but the astronomical amount of institutional shorts on the metal and funds backed by it like SLV meant that traders and investors could continue to buy more shares or more physical metal without prices rising significantly.

SLV 1-week price chart. Source: Google Finance

SLV 1-week price chart. Source: Google Finance

This situation of being able to “buy on the dips” may be winding down, as per-share prices for SLV surged over the course of the first week of March. Moreover, the price of silver was sharply higher on Thursday, adding over 2.3% to settle near $15.35/oz.

The prospects for both GDX and SLV are closely related to the prices for the precious metals, but offer slightly different performance. In a way, they can add diversity within your investments in precious metals; of course, you should always have plenty of physical to back it up, first!

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.