Silver is an interesting topic. Its direction is relatively easy to predict for several reasons. While there are no guarantees, the reasons silver will trade higher or lower in the future should be known by potential investors.

If you’re going to go long silver, then there are several ways to do it, but one popular option is the iShares Silver Trust (SLV), which averages 8.8 million shares traded per day.

By the Numbers

Below are important numbers for anyone considering an investment in SLV (as of Dec. 31, 2014):

  • 52-Week Range: $14.64 - $21.30
  • Dividend Yield: None
  • Net Assets: $5.26 Billion
  • Inception: April 2010
  • All-Time High: $46.88 (April 2011)
  • Annual Expense Ratio: 0.50%
  • 5-Year Average Return: -1.89%
  • 3-Year Average Return: -17.62%
  • 1-Year Performance: -15.36%
  • YTD Performance: -19.51%

Performance and Comparisons

The overall performance for SLV leaves a lot to be desired. However, a 20% decline since its high in 2011 isn’t the end of the world. This is especially the case for an investor who has slowly been adding to his/her position as opposed to someone who bought all at once.

SLV is also better situated than ProShares Ultra Silver (AGQ). Some investors are lured to AGQ because of its upside potential in a short period of time, but attempting to time the market has never proven successful over the long haul, and if you’re looking to hold one of these positions long-term, then it should be SLV, one reason being a lower expense ratio of 0.50% vs. 0.95%. SLV is much less likely to be hammered if silver prices continue to fall. Unfortunately, though, it’s not all good news for silver and SLV. 

Don't Fight the Trend

Silver approached $50 an ounce in late 2010, and SLV peaked in April of 2011. Since that time, both silver and SLV have suffered steady declines. And there are no reasons for a trend reversal.

You might have read that unemployment dropped to 5.8%. That’s good news, but it’s not as important as wage growth. Without wage growth, there will be no sustainable increase in consumer spending. The holiday shopping season went reasonably well, but this has a lot to do with lower gas prices and purchases on credit. Therefore, it’s debatable whether or not the consumer will continue to spend throughout 2015.

Consumer Spending Trumps All

With regard to wage growth, data compiled by suggests that wage growth has been choppy for several years, and we’re still nowhere near where we were prior to The Great Recession. Also keep in mind that the worst economic catastrophe in the United States since The Great Depression isn’t likely to be solved in less than one year (mid-2008 to early-2009). The Federal Reserve’s easy-money policy has helped fuel Wall Street, but not Main Street. 

Another reason to be concerned is a decline in U.S. new home sales, which dropped 1.6% in November. Consumers lack credit and savings. If young consumers lack credit and savings, then it’s difficult to imagine a scenario where consumer spending increases on a sustainable basis.

Most alarming, however, are Japan and Europe. Japan is in recession; Europe is approaching recession. In the first nine months of this year, 25% of U.S. exports went to Japan and Europe. If they suffer from deflation, then it will creep its way to the United States. 

This plays a big role in commodities. It’s a common misconception that gold and silver are good hedges in trying times. This is true in an inflationary environment, but not in a deflationary environment. With deflation, commodities are actually the first to get hit, often followed by technology (reduced discretionary spending).

Potential Spikes and Long-Term Out Look

If there is an alarming geopolitical event, then commodities could skyrocket overnight, but nobody wants to see this scenario play out, so let’s assume it can be avoided. The good news for long-term holders of silver and SLV is that any future boom in our economy (this is likely considering historical trends) would be accompanied by significant inflationary pressures due to recent and current Federal Reserve policies, which could lead to silver (and gold) breaking through previous highs. However, this will take many years to play out. 

The Bottom Line

If you want a quick return, then SLV isn’t a good option for you. If you’re looking for a long-term investment that’s likely to appreciate significantly in the distant future (7-10 years), then you might want to consider SLV. Just keep in mind that’s likely to get a lot worse before it gets better. Please do your own research prior to making any investment decisions.