Perceptions Of Silver Changing Dramatically (SLV, SLW, PSLV)

What we are seeing in the silver market is truly incredible. The iShares Silver Trust ETF SLV, which is very closely correlated to the spot price of silver, has surged nearly 22% in the last month, and more than 100% in the last year. What has been taking place, and is now becoming more pronounced, is that the perceptions of the metal are now changing significantly.

It used to be that silver traded primarily with the outlook for the global economy, as the metal is widely used in a vast array of industrial capacities. Economy not looking so good? Sell silver. Industrial output on the rise? Buy silver.

That relationship has totally changed. Just look at today's trading activity. The Dow Jones Industrial Average is down more than 140 points on Friday, yet silver is skyrocketing once again, with the SLV up nearly 4%.

While silver has always been known as a "precious metal," it was really industrial demand that dictated its price. Not anymore. Now it is extreme investor demand for silver that is reshaping its fundamentals. Investors are clamoring for silver as a hedge against inflation and geopolitical risks, and in the current environment it is working wonderfully. If you own stocks, you should also own gold, silver, and oil to protect against geopolitical shocks as well as inflation.

There are a number of ways that investors can participate in the silver rally. The largest and most liquid silver ETF is the iShares Silver Trust SLV. There are concerns, however, about the structure of SLV and how much physical silver it actually has in its vaults.

Investors who are leery of SLV should look into the Sprott Physical Silver Trust PSLV. Although it trades at a significant premium to NAV, all shares are fully backed by physical silver, which is stored in Canadian vaults.

The other option is to invest in silver mining companies or Silver Wheaton SLW, which is a silver royalty company whose stock price is highly correlated to spot silver prices. Silver Wheaton has long-term contracts with other mining companies to buy silver at very cheap prices. As a result of this structure, expenses at SLW are low, and margins are extremely high.