The Fall and Rise of SLV

The price of iShares Silver Trust (SLV) slightly rallied in the past couple of weeks. Let’s examine the recent developments related to SLV including China’s rate cut, and the progress of the U.S. economy.

U.S. Growth and SLV

The second estimate for the U.S. GDP growth rate in the third quarter will be released this week.

The current expectations are for the growth rate to reach 3.3% (annual growth). This is slightly lower than the first estimate for the quarter of 3.5%. Usually, the first estimate set the pace for the market’s reaction to the progress of the U.S. economy.

Even though a sizable portion of silver’s demand comes from the industrial sector, this sector seems to contribute a smaller portion due to relatively little change in the demand and price inelasticity of silver in this industry. The big swings tend to occur in the demand for silver for investment purposes.

This is only a small sample (so no statistical significance) and doesn’t account for other news items that were released on the day of these reports (such as FOMC press releases and minutes). Moreover, the first estimates were all released a day after the FOMC concluded its meetings. After controlling for these events, it seems that the release of the GDP doesn’t have a strong impact on the direction of SLV. So a higher growth rate doesn’t seem to coincide with a positive reaction in for SLV.

For the rest of the report you can see it at Seeking Alpha

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