SIL: A Smart Play In Today's Economy

seekingalpha11-02

The spread between SIL and SLV has not yet closed, despite SIL having grown by 20% in the last quarter.Lower interest rates and greater federal debt prospects could stimulate the demand for precious ...

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short-term fears may not affect the long term.   Adam Gault  I hate leaving a question unanswered, and I think it's time to update my analysis of Global X Silver Miners ETF . Since the last coverage, SIL's price has gained over 20%, outperforming the S&P 500 by 15%. So, the question naturally arises: is it perhaps time to downgrade to SELL?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SIL":"Silver Miners Etf"},"translate_title":"SIL：当今经济中的明智之举","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SIL":0.9},"content_text":"The spread between SIL and SLV has not yet closed, despite SIL having grown by 20% in the last quarter.Lower interest rates and greater federal debt prospects could stimulate the demand for precious metals.The price of SIL has reached an overbought zone; short-term fears may not affect the long term.   Adam Gault  I hate leaving a question unanswered, and I think it's time to update my analysis of Global X Silver Miners ETF (SIL). Since the last coverage, SIL's price has gained over 20%, outperforming the S&P 500 by 15%. So, the question naturally arises: is it perhaps time to downgrade to SELL? The answer, as always, is “it depends”, but in my honest opinion, the rating remains HOLD. Monetary policies remain anchored to the narrative of potential interest rate cuts, and the issue of federal debt is becoming increasingly significant with the upcoming election. These are all strong reasons to incentivize investors to buy precious metals, benefiting from their store-of-value function. Regarding the “SIL or SLV” comparison, the spread has not yet closed, which could be another reason to confirm HOLD, especially from a portfolio composition perspective. SIL vs. SLV: the spread is still open In my last analysis on SIL ETF, I made a comparison with SLV. When the price of silver rises, SIL tends to outperform due to an increase in profit expectations for the stocks within the SIL ETF, which typically triggers a BUY RUN. Data by YCharts We have to admit that, in the last three months, SIL has not outperformed SLV. Data by YCharts At the same time, looking at the comparison over a larger timeframe, the \"spread\" has not yet closed and maintains a similar width compared to the last quarter. In my opinion, this could be a good reason to confirm the hold rating in SIL, given that this spread historically tends to close. Macro conditions are becoming more favorable for SIL The Federal Reserve, the \"big boss\" of money supply, has started lowering interest rates, and it seems ready to continue the current process of cutting the Fed rate. US Interest Rate (tradingeconomics.com) According to the CME Fed Watch Tool, the probability of a rate cut at the next FOMC meeting is close to 98%, even though discussions have shifted from 50 basis points to 25 basis points, unlike last time. Target Rate 7 NOV 2024 (CME) This consideration is further accentuated by the upcoming US election, as lowering the cost of money appears to be a political issue. According to an interesting survey conducted by the Wall Street Journal with 66 economists, in the worst-case scenario (higher-end forecast), regardless of whether Trump or Harris is elected, the Fed funds rate is expected to remain in a downtrend. Fed-funds rate target (WSJ) So, this would lead to further monetary expansion at a time when global M2 is already at an all-time high. M2 (Fred) If we continue to consider gold and silver as a good store of value, rather than just a “safe asset,” as I often like to envision, that could be a solid reason to confirm the hold rating on SIL ETF.   The issue of US debt Looking at the upcoming election and trying to go beyond the political issues, everyone sees a justified concern, in my opinion, regarding the level of federal debt (regardless of whether Trump is elected or not). The political goals do not align with monetary objectives, and this will likely result in an increase in federal debt, as confirmed by the economic plans shared by both candidates. In my view, this is another reason to trust in the appreciation of precious metals, such as gold and silver. This is also confirmed by recent market movements; we have witnessed a very interesting combination of factors that, in my opinion, should strengthen confidence in SIL.   DXY, US30Y and GOLD (TradingView) This is a chart I shared in this article, so you can read my full analysis there. Now, I'd like to summarize it: despite the Fed's rate cuts, the yield on long-duration Treasuries is rising. This is because expectations of another expansion in federal debt are creating new long-term risks, in my opinion. So, while in the short term the danger has been mathematically reduced by the decrease in the Fed's interest rate, the market remains wary of Treasuries. This market sentiment has been exaggerated by the simultaneous rise in GOLD and the outperformance of SILVER, so SIL as well. DXY, US30Y, GOLD, SILVER (TradingView) So, despite an increase in the DXY level, driven by rising Treasury yields, the market continues to favor buying precious metals. In my opinion, this is the best representation of current market sentiment and a strong reason to confirm hold rating to SIL. To summarize, we are not talking about one specific economic regime or another, but rather about the ongoing process of the increasingly rapid depreciation of money, especially the dollar. Risk So, the risk is not related to macroeconomic concerns, like the fear of a \"soft landing\" for those invested in precious metals. Rather, it’s about becoming a victim of the natural short-term cyclical nature of the commodities market. Looking at SIL from a charting perspective, we can immediately see that its price action is quite sensitive to overbought conditions. In my opinion, the strong rally in the last quarter could incentivize more sellers than buyers, and SIL's price might be affected by this situation. SIL (TradingView) But that could be only a short-term issue, and in my opinion, there are good reasons (the ones listed above) for a return of buyers. Conclusion To conclude, I believe the rating for SIL should remain HOLD; The spread between SIL and SLV continues to persist, and historically, it tends to close. Additionally, we have to consider that the decrease in the Fed funds interest rate, coupled with the increasing probability of a new expansion of the federal deficit, should pave the way for an expansion of M2. In a macroeconomic context like this, assets such as silver and gold are likely to be viewed as stores of value, which supports the decision to confirm my hold rating in SIL ETF.  Finally, all of this culminates in the ongoing de-dollarization process, a reality more relevant than ever.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480851104"}