Invest in Commodities through Silver ETFs or Futures Contracts - dummies

Invest in Commodities through Silver ETFs or Futures Contracts

By Amine Bouchentouf

Silver can play an important role in your commodity portfolio. Because of its precious metal status, you can use it as a hedge against inflation and to preserve part of your portfolio’s value. In addition, because it has important industrial applications, you can use it for capital appreciation opportunities. Whether for capital preservation or appreciation, any portfolio has room for some exposure to silver.

Silver commodities ETFs

One of the most convenient ways of investing in silver is to go through an exchange-traded fund (ETF). Until recently, no ETFs tracked silver. However, Barclays Global Investors (a subsidiary of the investment bank) launched an ETF through its iShares program in April 2006 to track the price of silver.

The iShares Silver Trust (AMEX: SLV) holds silver bullion in a vault and seeks to mirror the spot price of that silver based on current market prices. This new silver ETF is a testament to the increased demand by investors to include silver in their portfolios.

Silver commodities futures contracts

Similar to gold futures, silver futures contracts give you the most direct access to the silver market. Following are the most liquid silver futures contracts:

  • CBOT Mini-Silver (CBOT: YI): The Mini-Silver contract that trades on the CBOT division of the CME represents a stake in 1,000 troy ounces of silver with a purity of 99.9 percent. This contract is available for electronic trading.

  • COMEX Silver (COMEX: SI): The COMEX silver contract is the standard futures contract for silver. It’s traded on the COMEX division of the CME and represents 5,000 troy ounces of silver per contract.

To give you an idea of the performance of the CME/COMEX silver futures contract, here is its price: