Play Rising Silver Prices With These ETFs

By , Money Morning •

Silver prices hit a six-month high at the end of the last week, closing around $35 per ounce.

In the last month, silver has undergone an 18% rally and year-to-date it is up 24.28%.

Silver and gold, which hit its own six-month highs, provide a nice hedge from inflation resulting from recent central bank action such as the U.S. Federal Reserve's latest stimulus measure, QE3.

"While QE1 and QE2 clearly did little to help the unemployed, their effects on the markets were undeniable," said Money Morning Global Resource Specialist Peter Krauth. "Commodities soared. Since March 2009, Gold is up 97%, silver is up 162%, oil is up 122%, and the Continuous Commodity Index (CCI) is up 55%."

Something metals investors should note: The white metal has been outperforming gold.

After February highs for both metals, gold rebounded sooner than silver did. By mid-May, it was back, while silver took until June to see gains again.

When rumors started earlier this year that QE3 would be announced, silver was just coming off of its low. The rumor mill gave it enough fuel to light a fire under the price, and after the recent Fed announcement silver price gains have outpaced those for gold.

Since Team Bernanke announced QE3 on Sept. 13, silver prices are up 2.7% while gold has gained about 0.6%.

Now that Fed Chairman Ben Bernanke just gave metals a shot in the arm, here's how to play a nice silver price rally with exchange-traded funds (ETFs).

Investing in Silver ETFs

The climb in silver prices has been good news for iShares Silver Trust (NYSE: SLV), ETFS Silver Trust (NYSE: SIVR) and PowerShares DB Silver Fund (NYSE: DBS).

In addition, silver miners are also experiencing strong performances this quarter. Global X Silver Miners ETF (NYSE: SIL) is up 25.4% in the last three months and iShares MSCI Global Silver Miners Fund (SLVP)is up 28%.

Silver ETFs outperformed gold ETFs, despite investors usually preferring the yellow metal.

SPDR Gold Trust (NYSE: GLD) has gained 9.9% and the Market Vectors Gold Miner ETF (NYSE: GDX) rose 15.0% higher over the same period, nudging ETF holdings by investors to reach record highs.

That's why investors interested in cashing in on the precious metals rally should consider silver, despite gold's more popular appeal.

They just have to be able to withstand a bit of volatility.

Dawn Bennett, portfolio manager of the Bennett Group of Funds, said to Marketwire, "While silver trades more volatile than gold, when the fundamentals for the safe-haven trade are in place, it performs extremely well and is affordable for any investor seeking refuge from the equity and bond markets or looking to hedge the dollar."

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That's why Money Morning's Krauth suggests sticking with what works in this post-QE3 environment.

"Maintain exposure to inflation-sensitive assets, like precious metals and commodities. They will continue to do as well or better than they did during QE1 and QE2," said Krauth. "The only difference with this round of QE is that it's going to be much bigger and go on much, much longer. So the effects of the first two rounds of QE are really just being extended, and the gains will multiply from here."

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