Precious metals, and their associated exchange-traded funds, may be an investment to consider after struggling in recent months. Moves by the Federal Reserve, and mounting statistical evidence, are suggesting things could be moving in the right direction for the assets class.
Considering the 75 basis point hike delivered last week, precious metals showed some life amid short-term declines, with silver poised to make a potential comeback and take a run at recent highs, or perhaps set new ones.
Often considered second to gold for precious metals investors, silver has sometimes gifted investors with comparable returns. A handful of funds that gain exposure to silver and take advantage of currently lower prices include the iShares Silver Trust (SLV), the sibling of the premier gold ETF, the iShares Gold Trust (GLD).
SLV is at an interesting crossroad. As seen in the chart below, there appears to be a double top, depending on how favorably one wants to draw the chart. But as seen here, in reality, SLV had a slightly lower high at the second top, which was an indication for astute traders that the precious metal was going to fall. And fall it did.
From just under $24.00 per share at the second top, SLV fell to below $19.50 at the first point at what would become a double-bottom. The subsequent bottom came in slightly higher than the first, which is normally a bullish indication. And it has been thus far, as the ETF has traded higher, recently getting close to that $20.50 level.
The question now is, of course, where does it go from here?
SLV experienced a double-bottom earlier this year, forming at about $20.50 per share. Predictably, the ETF moved higher from there, moving up more than 4 points, forming the first top of the double-top. Now, seeing as how we are calling the recent moves a double-bottom, we should expect a move higher, but there is risk visible.
If this proves to be a double bottom, then the move higher should be expected to take SLV from $20.00 per share to approximately $22.50 per share, a nice 10+% move that could prove to be even higher.
Of course, the downtrend could also prove to be longer-term and not transient, in which case investors should sell their long positions and either ride it out or consider using short or inverse ETFs.
There are many to choose from, including those that use leverage to provide two or three times the return of a non leveraged inverse ETF. For example, the ProShares UltraShort Gold (GLL) provides investors with two times the return of a nonleveraged ETF, as well as two times the losses.