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.