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It’s time to consider silver-plating your portfolio

The US government’s recent decision to impose a 30.0% tariff on solar panel imports though disruptive was a timely reminder to pay attention to silver, which is the active element in the working of solar panels. There was some concern that the tariff hike may further dent the already depressed price of silver, which is down 67.0% over the past five years and even now is available at just $16.50 / ounce (as of January 31 2018).

And though there may be an initial dip in solar panel demand following tariff hikes that demand is not going away and neither are the compelling economics of owning silver. The solar panel industry alone consumes approximately 10-12.0% of the annual global silver production and unlike its shinier counterpart, gold, silver has wider use in manufacturing especially in electronics. Besides being driven by growth in industrial output in North America, China, Europe, Japan and India, silver prices are also tied to the price of gold and copper, which have increased by 10.0% and 30.0% in 2017 and a further 2.0-3.0% increase in January 2018. The price of silver has lagged both of these and a further increase in gold prices, given inflationary pressures can trigger a rally in silver. In addition, silver production has been declining in recent years as miners could not cover their average cost of production and there is a favourable imbalance as demand for silver is growing. The weakening US dollar makes silver more affordable in China and India where there is a significant appetite for bullion and silverware.Given that we are in the expansion phase of a major economic cycle, a rally in metal prices is normal and silver is only beginning to show signs of catching up to other commodities.

There are a couple of easy ways to play the silver price theme. One is by buying the iShares Silver Trust (SLV) exchange traded fund (ETF), which actually holds the metal and the other is to buy into silver mining companies. Since several silver miners are traded outside Canada it makes sense to consider the ETF that invests in a basket of global silver miners. Worth considering are ETFs such as the iShares MSCI Global Silver Miners (SLVP) and the Global X Silver Miners (SIL). In a rising price environment it makes more sense to add some operating leverage to your silver investments by buying into companies rather than just holding the metal, though both could end up being profitable trades.

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