SLV Is Up 145% in One Year. Is the iShares Silver Trust Still Worth Buying?

The iShares Silver Trust ETF (NYSEMKT: SLV), which manages $38 billion in assets, is the world's largest silver ETF. Over the past 12 months, its shares have rallied 133%, while silver's price has risen 142%. Let's see why silver is soaring, and if its top ETF is still worth buying.

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Why is silver's price skyrocketing?

Silver outperformed gold, which also appreciated 44% over the past 12 months, because it has more real-world industrial applications in the production of solar panels, electric vehicles, consumer electronics, and data centers. The market's demand for silver across these markets -- especially in renewable energy and AI-driven data centers -- has been skyrocketing.

Meanwhile, declining ore grades, rising production costs, and environmental regulations have prevented silver miners from producing enough silver to meet that rising demand. Silver can be recycled, but not quickly enough to overcome those supply constraints.

At the same time, inflation, elevated interest rates, tariffs, geopolitical conflicts, and other macro headwinds drove investors toward safe-haven assets such as gold and silver. Expectations for more interest rate cuts also prompted more investors to buy gold and silver as classic hedges against the devaluation of the U.S. dollar and other fiat currencies.

That mix of industrial demand, investor demand, and production bottlenecks drove silver's price to its record high of $122 per troy ounce this January. It's pulled back nearly 40% since then, but Wall Street's most bullish analysts expect it to reach $150- $200 over the next five years.

Is the iShares Silver Trust ETF worth buying?

The iShares Silver Trust ETF is a simple way to profit from that trend, but it underperforms physical silver over the long run. Over the past 10 years, the ETF rose 328%, while silver's price rose 376%. That gap will widen because the ETF charges an annual sponsor fee of 0.50%, which is paid by selling some of its own silver. Therefore, each ETF share represents less physical silver over time and guarantees lower returns.

The ETF also only trades during regular market hours, so it can't track silver's spot price 24/7. As a result, the ETF's price movements will eventually deviate from silver's spot price. That gap, along with its compounding fees, can make it less appealing than holding physical silver.

That said, the iShares Silver Trust ETF remains a good option for investors seeking simple exposure to silver without buying physical silver. However, if you're looking to maximize your long-term returns and stay pegged to the spot price, physical silver might be a better bet.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.