Turbocharged Silver Exposure with AGQ

In a June 4 Searching for Alpha article on silver and the Amplify Junior Silver Miners ETF (SILJ), I concluded:

I am nonetheless bullish on silver, which was round $30 in early June 2024. Shopping for throughout the present correction could also be optimum strategy.

July COMEX silver futures have been at $29.685 an oz on June 4 and have been little modified at $29.615 on June 24 as the valuable steel continues to digest a current transfer to its highest value in additional than a decade ( XAGUSD:CUR ). December 2012.

Silver rises to a brand new multi-year excessive and corrects

Silver costs hit decrease lows and highs after falling to their lowest value since January 2009 in March 2020, simply as the worldwide pandemic gripped markets throughout all asset courses.

The twenty-year chart highlights the bullish sample that has developed over the previous 4 years. Futures rose to a excessive of $32.50 in Might 2024, the best value in almost a decade, earlier than falling under $30 an oz.

Consolidation may set the stage for even increased costs

The shorter-term three-month development for July silver futures exhibits that $30 has turn out to be a turning level, with the value consolidating across the stage the place it rose above technical resistance at $30.16.

Because the chart exhibits, silver futures have traded both aspect of the $30 reversal level since early June, with a low slightly below $28.75 and a excessive above $31.50 an oz.

Even probably the most aggressive bull markets hardly ever transfer in straight strains; traditionally, silver is not any exception. The correction could possibly be the creation of a base from which it strikes to increased highs if the development from March 2020 stays unchanged.

The case for Silver-Rising industrial demand and the potential for sharp progress in funding demand

In an article dated June 4, I highlighted the scarcity of demand for silver, writing:

In January 2024 The Institute of Silver a fourth consecutive yr of “structural market deficit” in silver is forecast. The institute projected a deficit of 176 million ounces (5,475 metric tons), following a deficit of 194 million ounces (6,035 metric tons) in 2023.

In April 2024 Institute of Silver the shortfall is projected to widen by 17% to 215.3 million ounces in 2023 as demand grows by 2% and provide falls by 1%. Whereas the availability and demand forecasts level to a rising scarcity, they don’t keep in mind probably the most vital issue for the trail of least resistance for the value of silver, funding and speculative demand. Silver’s propensity for volatility causes many buyers and speculators to flock to the market as developments develop. A shopping for or promoting herd could cause dramatic adjustments within the basic silver equation. A break to the best stage for the reason that finish of 2012 was an occasion that would considerably disrupt the evaluation.

As silver continues to make increased lows and highs, and the present interval of consolidation creates a base from which silver costs will transfer increased, count on waves of shopping for from trend-following merchants, buyers and speculators. We may watch silver costs soar increased as technical resistance ranges give method.

Composition of Bloomberg Silver Subindex futures contracts

The Bloomberg Silver Sub-Index is a sub-index of the Bloomberg Commodity Index that displays the efficiency of silver as measured by the COMEX silver futures value. The outline of the check is as follows:

The index doesn’t keep in mind the bodily supply of silver futures on the COMEX. As a substitute, it strikes from one lively month-to-month contract to the following inside 5 enterprise days.

The silver futures market is in contango, which means that the deferred contracts are buying and selling at a premium to the near-term contracts. Contango displays rates of interest, storage and insurance coverage prices. Excessive rates of interest elevated silver futures contango, which weighed on the index’s efficiency. Nevertheless, increased silver costs in 2024 greater than offset the prices of contango. The silver futures contract rose 24.3% from $23.853 on the finish of 2023 to $29.64 on June 24.

AGQ Turbocharger Bloomberg Silver Subindex-Timing is essential

The fund abstract for the ProShares Extremely Silver ETF states:

AGQ makes use of silver futures contracts to create leverage. COMEX silver futures presently require an preliminary margin of $12,650 and a upkeep margin of $11,500. At $29.64 per silver, management of the $148,200 5,000-ounce COMEX silver futures contract requires solely an 8.54% good religion deposit and a 7.75% service requirement.

The underside line is that futures present vital leverage, and the AGQ ETF makes use of that leverage to create a day by day adjustment of twice the value of silver futures. AGQ is a liquid leveraged ETF product with property beneath administration of over $564 million per share at $38.42 per share. AGQ trades a mean of almost 1.68 million contracts day by day and fees a administration payment of 0.95. Futures for July COMEX silver futures rose 24.7% from $26.255 on Might 2 to $32.75 on Might 20.

Over the identical interval, AGQ rose 52% from $31.10 to $47.28 a share because the ETF earned twice as a lot as silver futures. Time and value stops are applicable when utilizing leveraged ETFs as a result of the put value is a decline over time. Please totally perceive the dangers and advantages of proudly owning leveraged ETFs by first studying the SEC’s Investor Alert Bulletin about them.

One other danger is that whereas silver trades 24/7, AGQ solely trades throughout US inventory market hours, so the leveraged product might miss highs or lows outdoors of inventory market hours. As a result of the silver hole can improve or lower throughout buying and selling overseas, AGQ can expertise vital value volatility, trapping buyers in worthwhile or unprofitable dangerous positions.

Timing is essential with any leveraged ETF. Within the meantime, risk-reward fundamentals and silver are driving costs increased in late June 2024. Bear in mind to strategy any dangerous place in AGQ with a selected value and trailing cease and keep on with this system. As silver rises, alter stops and revenue targets increased to maximise and shield income. Nevertheless, short-term losses will forestall devastating monetary outcomes if silver strikes decrease and in opposition to expectations. If a correction lowers silver costs, stopping and taking one other take a look at constructing a protracted AGQ place at decrease ranges is the precise strategy.