Not even precious metals escaped yesterday’s historical selling rout that saw virtually every asset class from stocks to digital currencies take a bath due to the rapid spread of coronavirus. In times of market panic like this, investors typically flock to safe-haven assets, such as gold and silver, to seek protection against extreme volatility. However, due to the severity of recent losses, which include the S&P 500 capitulating almost 30% in less than a month and oil logging a single-day 24% price decline, fearful investors have liquidated precious metal holdings to help offset some of the damage.
“We believe prices will likely continue to be caught in a tug of war between safe-haven flows and liquidity needs,” said Standard Chartered precious metals analyst Suki Cooper, per kitco.com. Silver prices looked particularly vulnerable, dropping nearly 6% by the close of New York trade, with the metal also suffering from a weaker outlook for its industrial demand as concerns of a global recession intensify.
Traders can position for further losses in silver prices by purchasing the two silver inverse exchange-traded funds (ETFs) outlined below that move in the opposite direction to the metal’s price. Alternatively, those who feel comfortable short selling could explore a trade in leading silver miner Pan American Silver Corp. (PAAS). Let’s look at each idea in more detail.
ProShares UltraShort Silver ETF (ZSL)
The ProShares UltraShort Silver ETF (ZSL) aims to deliver twice the inverse one-day return of the Bloomberg Silver Subindex – a benchmark that tracks the daily performance of silver bullion as measured by the fixing price, in U.S. dollars, for delivery in London. Average turnover of about $1 million in dollar value provides ample fund liquidity, though sporadic spreads at times make it worthwhile to use limit orders when placing trades. As of March 13, 2020, the ETF controls $12.87 million in net assets and has returned almost 11% year to date.
The fund’s share price has oscillated within an orderly eight-point trading range since September but surged 13.57% yesterday to gap above the range’s top trendline and 200-day simple moving average (SMA). Traders who buy here should think about booking profits on a test of key overhead resistance at $44 while protecting the position with a stop-loss order placed just underneath Thursday’s low at $28.91.
VelocityShares 3x Inverse Silver ETN (DSLV)
With assets under management (AUM) of $27.15 million, the VelocityShares 3x Inverse Silver ETN (DSLV) has an objective to return three times the inverse daily performance of the S&P GSCI Silver index. The fund, which effectively provides leveraged short exposure to the performance of the front-month silver futures, turns over roughly 200,000 shares per day on an average three-cent spread. DSLV charges a 1.65% management fee and has gained 14.54% on the year as of March 13, 2020.
Like ZSL, DSLV shares jumped above a seven-month trading range and the 200-day SMA Thursday in a move that may act as a catalyst for further buying in coming trading sessions. Those who want to join the upside momentum should set a take-profit order near the 52-week high at $35.65 – an area sure to be watched closely by technical traders. Guard against a sudden reversal in price by placing stops either beneath yesterday’s low or under the 200-day SMA.
Pan American Silver Corp. (PAAS)
Headquartered in Vancouver, Canada, Pan American Silver focuses exclusively on the exploration and development of silver mines with operations located in Mexico, Peru, Canada, Argentina, and Bolivia. Earlier this year, Deutsche Bank downgraded the silver miner, saying that most commodities still require supply cuts. The German investment bank added that it remained concerned that supply cuts may now take longer due to improving options for marginal producers. Trading at $16.54, with a $3.48 billion market cap and offering a 1.06% dividend yieldPan American Silver stock has tumbled 30% so far this year as of March 13, 2020.
Pan American shares took a double hit Thursday from hemorrhaging equity markets and slumping silver prices, with the stock closing 7.5% below its 200-day SMA. Traders who execute a short sale at current levels should look to cover their position near the May 2019 low just above $10. A wide stop placed above yesterday’s high at $18.60 still offers a favorable risk/reward ratio of just over 1:3, assuming a fill at Thursday’s closing price ($2.07 risk per share vs. $6.34 profit per share).