SLV Likely to Bring Pain—And Rewards

Silver is an interesting topic, partly because there are several good indicators for predicting the direction of its price. While there are no guarantees, the reasons silver is likely to 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. However, one of the most popular options for stock traders and investors is the iShares Silver Trust (SLV). SLV is an exchange-traded fund (ETF) that holds silver for investors, and it is bought and sold at leading brokerages just like stock ETFs. It also has plenty of volume for traders, with a 30-day average of 21.4 million shares traded per day as of Oct. 14, 2022.

By the Numbers

Below are important numbers for anyone considering an investment in SLV (as of Sep. 30, 2022):

• 52-Week Range: $16.38 - $24.18
• Dividend Yield: None
• Net Assets: $9.1 Billion
• Inception: April 2006
• Annual Expense Ratio: 0.50%
• 10-Year Total Return: -6.30% (as of Sep. 30, 2022)
• 5-Year Total Return: 1.94% (as of Sep. 30, 2022)
• 3-Year Total Return: 2.77% (as of Sep. 30, 2022)
• 1-Year Total Return: -12.091% (as of Sep. 30, 2022)
• YTD Total Return: -17.28%

Performance and Comparisons

The 10-year performance of SLV leaves a lot to be desired. However, poor returns between 2010 and 2015 are not the end of the world. That is especially true for an investor who has a small share of funds in SLV as part of an asset allocation.

SLV is also a better fit for long-term investors than ProShares Ultra Silver (AGQ). Speculators often prefer AGQ because of its upside potential in a short period of time. However, attempting to time the market has a poor track record. SLV has a lower expense ratio of 0.50% compared to 0.95% for AGQ, and lower fees are the only guaranteed way to improve returns. SLV is also much less likely to be hammered if silver prices happen to fall.

Don't Fight the Trend

Silver approached $50 an ounce in April 2011, which is when SLV peaked. After that time, both silver and SLV suffered steady declines for many years. However, returns were respectable between late 2015 and the end of 2020.

Silver made impressive gains in 2020 amid massive economic stimulus from central banks and governments. Precious metal prices tend to be strongly driven by momentum, and prospects for additional government spending looked good in late 2020. Furthermore, indicators like the gold/silver ratio were still fairly favorable.

Continuing Economic Weakness

The Federal Reserve’s easy-money policy has helped fuel SLV and Wall Street, but not Main Street. 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. This weakness tells policymakers that they can continue spending and printing money, which helps SLV.

It’s a common belief that gold and silver are good hedges in trying times. That's actually more true of gold than silver. Economic weakness can be good for silver. However, an outright financial disaster could cause another rush into U.S. dollars, hurting silver prices and SLV.

Potential Spikes and Long-Term Outlook

On the other hand, some alarming geopolitical events could send stocks crashing and commodities skyrocketing overnight. New wars threatening oil supplies in the Middle East tend to top that list. No one wants to see that happen. The good news for long-term holders of SLV is that a relatively small investment in silver can take the edge off those types of stock market declines. That helps SLV to improve the risk-adjusted return of some portfolios.

The Bottom Line

If you want quick profits, then SLV might not be the best choice. If you’re looking for a long-term investment as part of an asset allocation, then you might want to consider SLV. Just keep in mind that silver is volatile, so it can go down just as fast as it went up during much of 2020.