Why has my silver ETF been so disappointing?

Q: I invested in the iShares Physical Silver ETC earlier this year but, after a large rise in value, it has taken a considerable downturn compared to gold. I would have thought that silver, being used extensively in industry (primarily electronics), should be a stable investment so I’m wondering why it is so volatile. 

A: This exchange-traded commodity (or ETC – traded on the stock market like an exchange-traded fund but for an individual commodity) is designed to mirror the performance of silver via exposure to silver bullion. To judge by figures from LSEG Datastream, the ETC does a good job of tracking the price of the bullion. And, as you say, silver’s decline in recent months has been far more severe than gold’s – more than twice as severe in fact (a fall of 45% for silver versus 19.5% for gold since the peak for both metals in late January). So, this ETC has lost a lot of its value.

But before this spectacular fall there was a spectacular rise in the price of silver – from about $35 an ounce at the beginning of summer last year to almost $117 at that peak in January. 

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This had all the signs of a classic speculative bubble and its subsequent bursting. It seems that people bought because they saw the price shooting up and then, when there were no more buyers, they sold as the price started to fall. Yes, some investors will have bought for other reasons, such as precious metals’ traditional perception as a safe haven in times of turmoil or when higher inflation is feared. But those investors were outnumbered by the speculators. During the bubble’s inflation and deflation, fundamentals such as industrial demand counted, at least temporarily, for nothing.

To judge by an up-to-date graph of the silver price, the bubble phase is now over and the price stability to which you referred has largely returned. For the past six weeks or so the silver price has fluctuated a little either side of $59 an ounce, although in recent days it has risen above $60.

What happens next is, as ever, impossible to say. Gold and silver did not behave as many investors would have expected during the more extreme phases of the Middle East conflict – they fell rather than rose. Against that there remain fears of higher for longer inflation and even ‘monetary debasement’ by western countries. And central banks have been building their gold reserves for years now as their faith in the dollar and American government bonds wavers in the face of unpredictable US policymaking and after Russian dollar-denominated assets were frozen following the invasion of Ukraine.

Many financial advisers and professional investors do believe that precious metals have a place in portfolios, but as one of a diversified range of assets. For example, the Ruffer Investment Company, which has long sought to preserve the value of shareholders’ assets in real terms, currently has 3.3% of its money in ‘gold and precious metals exposure’, according to its most recent factsheet. The Personal Assets Trust, which has a similar goal, has 8.4% of its assets in gold bullion.

Past performance is not a reliable indicator of future returns

Source: LSEG, total returns in GBP terms from 31.7.21 to 31.7.26. Excludes initial charge.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Overseas investments will be affected by movements in currency exchange rates. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. Shares in Ruffer Investment Company and Personal Assets are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts such as these can gain additional exposure to the market, known as gearing, potentially increasing volatility. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.