Is It Too Late to Buy This Surging Silver ETF?

The price of silver has gone through the roof, and it's making the iShares Silver Trust (NYSEMKT: SLV) an incredibly hot buy. Silver has hit record highs of more than $120 per ounce this year -- or 3 times the roughly $40 it was trading at back in September. The metal has gone parabolic, and as of Jan. 30, the iShares Silver Trust has now returned gains of around 220% in just the past 12 months. By comparison, the S&P 500 is up only 15% during that same period.

Is it too late to get in on this rally, or could the price of silver and the iShares Silver Trust continue to rise even higher this year?

Image source: Getty Images.

Is silver the ultra-safe-haven investment, or just the latest meme?

Silver and gold have risen in value in the past year as investors have grown concerned about rising stock valuations and are pivoting to safer investment options. Getting out of stocks and into traditionally safe-haven type investments such as silver and gold has long been associated with diversification and reducing your portfolio's overall risk.

Ironically, however, with silver prices going parabolic and continually reaching new highs, buying the metal or investing in an ETF such as the iShares Silver Trust could actually increase your risk right now. That's because the rally appears to be fueled by hype and excitement, rather than fundamentals. Many analysts see it as being the equivalent of a meme investment, where retail investors send an asset's valuation to unsustainable levels, only for it to end up crashing back down to reality.

This past Friday, the price of both silver and the iShares Silver Trust crashed after President Donald Trump announced his pick for Federal Reserve Chair, Kevin Warsh. While the move is seen as one that might preserve Fed independence, it appears to have weighed significantly on the price of both silver and gold.

Steering clear of the iShares Silver Trust may be the best move for now

The problem with memes and parabolic moves is that it can be impossible to predict where the top might be. The danger is that you might buy into the rally, believing that it's unstoppable, only to find out that you've bought near the peak and incur significant losses afterward.

While the iShares Silver Trust can usually be a good investment option to diversify your portfolio, today, I think it would simply add more risk given the meme-like movement in silver over the past several months. If your goal is to simply diversify your portfolio, you may be better off investing in dividend stocks or other low-volatility investments.

Silver may have seemed like a safe-haven investment in the past, but it's hard to make the case for that today, given its extremely inflated value and high volatility.

David Jagielski, CPA 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.