Precious metals investors are investing in silver now at a higher rate than gold - and the price is rewarding them.
The physically backed iShares Silver Trust (NYSE: SLV) took in $88.2 million in new money last month, according to data from IndexUniverse. UBS expects holdings in major silver exchange-traded funds (ETFs) worldwide to grow by 10 million ounces (311 tons) this year.
That's a stark contrast to the $227 million of outflows in the gold-backed SPDR Gold Trust (NYSE: GLD) and $6.66 billion among fixed-income funds.
Here's why those bets will pay off.
Why Investing in Silver Is Beating Gold
Fresh rallies in silver and gold were stirred last month as scores of market participants flocked to risk-off trades. Gold futures climbed 6% in August and are up a stellar 12% since June.
Yet, compared to silver's more than 20% gain over the same period, gold's gains look dull.
After a steep 32% decline from January to June, silver prices gained 21.3% in August amid bargain hunting, renewed interest, and frenzied demand. The white metal continues to show strength and remains on pace to log its first quarterly gain since Q3 of 2012.
And silver ETFs were the best performers of the group in August.
Sentiment toward investing in silver has changed drastically since earlier this year when investors fled from the precious metal as stocks soared to record highs.
But recent geopolitical tensions, U.S. debt issues, and worries over a market crash have made investing in silver a smart option - and it's turning more heads than gold.
Moreover, gold prices are likely to remain under pressure near term as uncertainty lingers regarding the timing and pace of the U.S. Federal Reserve's plan to scale back its share-price-driving stimulus programs. Since the first mumbling of a quantitative easing (QE) taper, gold prices have skidded some 18%. [Although the long-term gold price outlook remains bullish - go here for details.]
While the white and yellow metals often trade in tandem, silver's movements are more extreme. That's why precious metals experts like Money Morning Global Resources Specialist Peter Krauth like to best describe silver as "gold on steroids."
The white metal has long been a fan favorite among smaller retail investors and speculators who aim to gain exposure to gold at a fraction of the price. Silver investors also tend to buy and hold. Traditionally, that means more bang for your buck.
Investing in Physical Silver on Record-Breaking Pace
Sales of the popular American Eagle silver bullion coins are up 45% year to date compared to the same period a year ago. So far in 2013, the Mint has accepted orders for more than 33 million coins and is poised to set a fresh annual milestone. The current record was set in 2011, with some 39 million one-ounce Eagles sold over 12 months.
MarketWatch reports that from 2006 to early 2011, sales of the number of ounces of American Eagle silver bullion coins outpaced sales of American Eagle gold bullion coins. The trend continued this year. Based on recent Mint sales, the ratio of silver to gold ounces has been roughly 48 to 1. In July it was 87 to 1, and in August it was a whopping 315 to 1.
"Many of our customers believe silver to be undervalued in relation to other precious metals. It's an affordable alternative to gold for example, with many of the same fundamentals and a potentially greater upside," J.W. Haugen, chief operating officer of Taxes-based Provident Metals told Money Morning.
Additionally, Chinese silver investment demand is projected to climb 10% next year, Bloomberg reports, as Asian investors move to preserve their wealth, fearing a further slowdown in the world's second-largest economy. Research firm Beijing Antaike reports 33% of China's demand comes from jewelry and coins, while the remainder is used in photography, solar panels, and electrical appliances.
Bottom line: It's a good time to be investing in silver now. So here's how to get started.
Silver ETF's 20% August Rally Beats Gold
Why Investors Like Silver More Than Gold
Silver Demand in China for Wealth Protection to Climb to Record 7,700 Tons