Here’s the updated chart of the Global X Silver Miners ETF (SIL), which tracks a basket of silver mining stocks. This is through market close on Tuesday, Aug. 4. What do I see? A potential bounce that could lift this ETF by perhaps 30%, back to its recent high. SIL sits at a classic point for technicians. It is trying to break out, but failure is also high probability.
Buying a mining stock isn’t the same as holding a physical bar of silver in your hand. The ETF tracks companies that dig metal out of the ground, which means you are buying real businesses with employees, machinery, and balance sheets.
Why Is SIL Rebounding?
Gold mostly gets bought as a form of money or safety. Silver does too, but it also gets used in manufacturing. Solar panels, electric vehicles, and computer chips all need physical silver. You get a push from both investors looking for safety and factories building tech.
Mining companies have fixed bills — like equipment, land leases, and worker pay. Once silver prices rise above what it costs a company to run the mine, every extra dollar increase in the price of silver turns into pure profit growth for the company.
Over 22% of this ETF is parked in a company called Wheaton Precious Metals (WPM). Wheaton doesn’t actually dig holes; it gives cash to miners upfront in exchange for buying their silver later at cheap, fixed rates. That keeps almost a quarter of the fund safe from surprise costs at the mine level. The next nine holdings by size get the top 10 names to more than 76% of SIL’s total portfolio.
What Could Go Wrong?
The biggest reason mining stocks lag behind physical silver is inflation. If diesel fuel, electricity, and worker wages get more expensive, it costs more to run the mine. Higher costs eat away at the extra profits, even if silver prices are up.
Silver mines also aren’t built in easy places. A lot of mines held by companies in SIL are in Latin America (like Mexico and Peru). A sudden tax hike, a local strike, or an environmental permit delay from local governments can knock a stock down fast. And, because half of all silver goes into industrial goods, a global economic slowdown means factories buy less metal. If tech and solar production cools off, silver takes a hit.
SIL for the Win?
SIL is a great tool if you want a high-upside play on precious metals without buying individual stocks. Just remember: because miners carry real-world business risks, SIL is usually better for medium-term trades rather than a fund you buy and forget about for 20 years.
Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
