Though it is still in the doldrums relative to other currency exchange-traded funds, the PowerShares DB US Dollar Index Bullish Fund UUP has perked up in recent sessions. The dollar's awakening, albeit modest, is pressuring commodities and the related ETFs, including silver funds.
The iShares Silver Trust SLV and the ETFS Silver Trust SIVR, both of which are backed by physical holdings of silver, each slid 2.4 percent Tuesday. UUP gained almost half a percent as investors turned to safer assets.
“Volatility in the entire Precious Metals space has been the case for the past several sessions and today’s gap higher in the U.S. Dollar threatens to take metals prices even lower should this strength hold,” said Street One Financial Vice President Paul Weisbruch in a note out Tuesday.
Quick Reversal
Silver's retreat on Tuesday comes just a few days after the white metal was bid higher amid U.S. geopolitical tensions with North Korea. SLV and SIVR are now up about 4.2 percent year to date, less than half the gains posted by the equivalent gold ETFs.
Faltering silver prices could create opportunity in leveraged ETFs, such as the ProShares UltraShort Silver ZSL and the VelocityShares 3X Inverse Silver ETN DSLV.
“The recent volatility in these segments, especially in Silver prices themselves should attract more traders to the space not only of SLV which is by far the largest fund in the space at $5.7 billion in AUM, but in other offerings as well,” said Weisbruch. “Smaller funds that are currently on our radar that often have appeal to traders and portfolio managers looking to aggressively hedge portfolios or make short term directional moves include DSLV and ZSL.”
Miners, Too
If silver prices remain stuck in a rut, investors should consider the consequences for mining ETFs. For example, the Global X Silver Miners ETF SIL lost more than 2 percent Tuesday and is clinging to a year-to-date gain of a comparable amount.
Prolonged weakness in silver miners could spell momentum for the Direxion Daily Silver Miners Index 2X Bear Shares DULL. DULL, which turns 1 year old next month, looks to deliver double the daily inverse performance of the Solactive Global Silver Miners Index.
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