Silver ETFs Face Critical Test Of Support

Precious metals started the year as one of the most hated asset classes after a 2013 that wreaked havoc on gold, silver, and even platinum prices.

Unfortunately, after a brief rally attempt in the first quarter, silver is once again slipping back down near its 2013 lows and appears to be nearing key support levels.

The iShares Silver Trust SLV tracks the daily spot price of silver bullion. This ETF is structured as a trust that owns physical silver and in turn creates or redeems shares according to fluctuations in the value of this precious metal.

SLV is the oldest and largest ETF that tracks silver prices, with more than $6.3 billion in total assets under management. That equates to approximately 327 million ounces of silver as of recent price data.

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Over the last 10 weeks, SLV has declined 13.50 percent from its recent high and is now down 2 percent on the year. While that return may seem merely weak on the surface, this represents a further extension of the 36 percent drop that SLV experienced in 2013.

Right now the price action appears to be firmly back in favor of the bears as falling interest rates and tepid inflation statistics are not supporting higher silver prices.

The key test will be whether or not this ETF can hold above its prior 2013 low near $18 per share and consolidate for another rally attempt. A drop below these key levels will likely be the signal for another wave of selling from commodities trading desks.

Aggressive ETF investors that are looking to capitalize on further price deterioration in this sector may want to consider the ProShares UltraShort Silver ETF ZSL.

This fund is designed to track double the inverse daily price movement of silver bullion. As an example, if silver bullion were to decline 1 percent, ZSL would rise 2 percent.

Conversely, one way to play the next bullish cycle in silver is through mining stocks. The Global X Silver Miners ETF SIL tracks the price movement of 26 global companies engaged in the exploration, mining, and refinement within the silver industry.

SIL tends to move in a similar fashion as SLV, but can have even more pronounced price swings depending on investor sentiment.

Whether you are a long-term investor or short-term trader, there are numerous ways to play silver using exchange-traded funds to profit in both directions.