The iShares Silver Trust (SLV) is the most prominent exchange-traded fund (ETF) that tracks the silver market. Like its counterpart in gold, the iShares Gold Trust (IAU), the fund is backed by a physical stockpile of silver bullion. This cache of physical silver rises or falls based on whether the fund is seeing net seller or net buyers on the market. The ups and downs of SLV are referred to as “inflows” and “outflows” to reflect this changing total of actual silver bullion.
Bears Become Active in SLV
Monday saw some unusually negative sentiment building up in SLV even though the silver market has continued to show robust strength of late. According to the insider opinions on the website Stock Caller, there were a whopping 1,500-plus put options for SLV during the trading session. Put options represent a bet that the share price will fall before the end of the contract’s duration—in this case, by April.
This building up of bearish positions, however, doesn’t seem to square with the current trend. This is true not just of SLV but also of the silver price in general. On Monday morning, despite the gold price pulling back, spot silver was about 10¢ per ounce higher, trading around $15.95/oz. This is within spitting distance of the argent metal’s high for 2016 just above $16 per ounce. Keep in mind that silver also began the calendar year trading below $14/oz after three consecutive years of declines in 2013, 2014, and 2015. This was one of the precious metal’s worst losing streaks on record, making it quite reasonable that silver is bouncing back with a vengeance in 2016. Silver prices are nearly 15% higher year-to-date.
At the same time, SLV itself seems to have withstood the bearish bets so far. During trading on Monday, the fund was better than 0.33% higher by about noon, Eastern time. This followed a pair of solid trading sessions to close out last week, as well.
Obviously, an increase in put options that are betting against SLV are not the only influence upon share prices (or the silver price, for that matter). The back-and-forth between bulls and bears is balanced by a confluence of external factors, such as the mining supply, industrial demand, and psychological sentiment on the markets. Right now sentiment appears to be trending positive for silver prices, but that could change if economic conditions begin to improve.
It’s unclear where silver prices go from here, especially with monetary policy in the U.S. still up in the air. Higher interest rates tend to dampen the appeal of precious metals, but a stronger economy could also signal more demand for silver jewelry and the various industrial applications for the metal, ranging from electronics to photovoltaic cells in solar panels to antibacterial uses in modern medicine.
As far as SLV is concerned, however, the uptrend over the last quarter could be undone if the downturn envisioned by the bears indeed comes to fruition. Keep a close eye on silver prices for indications one way or the other, as silver prices are generally more volatile than gold.
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.