Silver ETFs offer short-term challenge but long-term potential: Should investors dive in?

Silver exchange-traded funds (ETFs) have witnessed a diverse performance in recent months. Over a span of one month, these ETFs experienced losses of approximately 6.48 percent and, over a span of three months, 2.57 percent. However, the past year painted a brighter picture, with a gain of 20.60 percent. Despite recent fluctuations, silver ETFs have shown resilience in the market since their introduction in 2022.

Recently, Rich Dad Poor Dad author Robert Kiyosaki also urged investors to buy silver before it’s gone. He stressed that silver is “a better bargain” as a long-term investment than gold.

As a precious metal, silver has stood the test of time as a reliable long-term investment option and a safeguard against inflation. Its unique properties, coupled with its dual role as an industrial and precious metal, have made it a compelling asset for investors seeking stability and diversity in their portfolios.

Talking about the price trajectory of silver, experts say it is intricately linked with both economic and industrial dynamics. Recent trends in silver's value align with broader asset classes such as equities and gold. Its industrial applications mean that shifts in global economic conditions, exemplified by events like China's economic downturn and the US rating downgrade, have influenced its recent performance.

Silver ETFs offer investors a convenient and secure avenue for investing in silver. With low investment costs and ease of access, these ETFs provide diversification benefits to portfolios. Shruti Jain, CSO of Arihant Capital, recommends considering silver ETFs as a long-term investment, highlighting their role in portfolio diversification.

Jain emphasises the influence of silver's industrial demand on its short-term prospects. The slowdown of major economies like China and the US can lead to temporary setbacks.

"However, silver's growing role in green energy technology and electric vehicles brings a positive outlook for the long term," Jain told CNBC-TV18.com.

Jain suggests that potential investors should recognise silver's historical reliability and its suitability as a safer investment choice. However, she advises against pursuing silver or any asset solely for short-term gains, considering silver's susceptibility to economic shifts.

"Silver prices can be very volatile in the short-term and can be more volatile than gold because it is more sensitive to economic changes. Like any other investment, it's important for investors to determine the right asset allocation based on their personal needs before considering an investment in silver," she told CNBC-TV18.com.

It must be understood that gold and silver funds contribute to portfolio diversification, offering stability and balance. For larger portfolios, dedicating a small percentage (around 10 percent) to gold and/or silver investments can prove beneficial.

Silver funds present both short-term challenges and long-term potential, reflecting their role as industrial and precious metals. While recent performance has been mixed, silver's future in green technologies and electric vehicles could foster growth. Investors should assess their personal needs and risk tolerance before considering silver investments, using silver ETFs as a strategic tool for portfolio diversification.