I am interested in investing in silver, and I would like to know more about the ETF AGQ. Would you recommend this investment, or some other ETF with leverage instead? With these ETFs, how much of a relationship is there with the physical metal?
AGQ ETF - the ProShares Ultra Silver ETF "seeks daily investment results that correspond to twice the performance of silver bullion, as measured by the U.S. Dollar fixing price for delivery in London."
In short, we believe that AGQ ETF is not a good proxy for long-term investment in silver. It is not even close to being backed by physical silver - it's simply a basket of futures contracts that provide 2x leverage for the price of silver. So, it's not a real metal - it's a derivative based on another derivative (futures contract). In the event of serious financial turmoil, AGQ will likely not provide protection - and physical silver would. So, in terms of attractiveness for long-term investors, it's not recommended.
As far as trading is concerned (something that one will do with only part of their capital), AGQ is attractive for risk-seeking investors. The tracking error of the ETF (referring to how closely it follows silver) is about 3.5%. This is one of highest in the precious metals ETF group, which is not too encouraging as it makes it more difficult to make precise price projections for the ETF based on the price of silver. Still, the leverage appears to make up for it, given that you are a risk-seeking trader. It appears that only risk-seeking traders interested in the precious metals sector should consider using AGQ as a proxy for silver.
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