Silver's Undervaluation and the AGQ ETF: A Leveraged Play on a Resilient Metal

Silver, often overshadowed by its more glamorous cousin gold, has long been a barometer of industrial and monetary demand. Yet, despite its critical role in sectors ranging from renewable energy to electronics, the metal remains undervalued relative to its fundamentals. Recent market dynamics—ranging from supply constraints to shifting monetary policy—suggest that silver's price correction may be nearing an inflection point. For investors seeking to capitalize on this potential, the ProShares Ultra Silver ETF (AGQ) offers a leveraged vehicle to amplify exposure, though its risks and costs demand careful scrutiny.

The Case for Silver's Undervaluation

Silver's price has lagged behind gold in recent years, trading at a historical discount to its industrial and monetary value. According to data from the London Bullion Market Association (LBMA), silver's price-to-industrial-demand ratio has fallen to multi-decade lows, reflecting underinvestment in mining and refining capacityLondon Bullion Market Association (LBMA) silver price data^[1]. Meanwhile, global supply chains remain fragile, with geopolitical tensions and environmental regulations constraining output. For instance, Peru and Mexico—two of the world's largest silver producers—have seen production delays due to labor strikes and regulatory hurdlesMining production reports from Peru and Mexico^[2].

Monetary policy also plays a role. While central banks have pivoted toward tighter monetary conditions in 2025, silver's sensitivity to interest rates remains muted compared to equities or bonds. This creates an asymmetry: if inflationary pressures persist or central banks reverse course, silver could outperform as a hedge against currency devaluationFederal Reserve monetary policy statements (2025)^[3].

AGQ: A Leveraged Bet on Silver's Resilience

The ProShares Ultra Silver ETF (AGQ) seeks to deliver twice the daily performance of silver prices, making it a potent tool for short-term traders. As of September 2025, AGQ's expense ratio is listed at 0.95% in some sourcesProShares Ultra Silver (AGQ) - Yahoo Finance^[4] and 1.50% in othersProShares ETF List^[5], reflecting discrepancies in reporting or differing timeframes. Regardless, the fund's cost structure is competitive for a leveraged ETF, particularly given its focus on futures contracts, swaps, and options rather than direct physical silver holdingsProShares Ultra Silver (AGQ) - Yahoo Finance^[6].

AGQ's performance over the 2023–2025 period has been volatile. While some data points show a year-to-date total return of 92.66% as of September 2025ProShares Ultra Silver (AGQ) - Yahoo Finance^[4], other records indicate a -19.50% return in 2023ProShares ETF List^[5]. This variability underscores the inherent risks of leveraged products: AGQ's 2x daily compounding mechanism can magnify gains in trending markets but erode capital during choppy or sideways conditions. For example, a 10% drop in silver prices would translate to a 20% loss in AGQ, while a subsequent 10% rebound would only recover 8% of the lost valueLeveraged ETF compounding mechanics^[7].

Catalysts and Risks

Three key catalysts could drive silver higher in the near term:
1. Industrial Demand Surge: The transition to renewable energy and electric vehicles (EVs) requires significant silver inputs. A single solar panel uses roughly 20 grams of silver, while an EV battery contains up to 100 gramsInternational Silver Trade Association (2025)^[8]. As global EV adoption accelerates, demand could outstrip supply by 2026Bloomberg New Energy Finance (2025)^[9].
2. Supply Constraints: Silver is a byproduct of copper, lead, and zinc mining. Declining base metal prices have reduced miners' incentive to produce silver, creating a structural supply deficitWorld Bank commodity supply reports^[10].
3. Monetary Policy Shifts: If central banks ease rates in response to a looming recession, silver's appeal as a store of value could rise. Unlike gold, silver's lower price point makes it more accessible to retail investors, potentially fueling speculative buyingU.S. Commodity Futures Trading Commission (CFTC) silver market analysis^[11].

However, AGQ's leveraged structure introduces unique risks. Its performance is tied to daily price movements, making it unsuitable for long-term holding. Compounding effects can distort returns over multiple days, and the fund's reliance on derivatives exposes it to counterparty riskProShares risk disclosures^[12]. Additionally, AGQ's expense ratio—whether 0.95% or 1.50%—must be weighed against its potential gains. For every $100,000 invested, annual fees could erode $950 to $1,500, depending on the sourceAGQ expense ratio calculations^[13].

Conclusion: A High-Risk, High-Reward Proposition

Silver's undervaluation is supported by robust industrial demand and constrained supply, but its price trajectory remains uncertain. AGQ offers a compelling leveraged play for investors who can tolerate short-term volatility and align their strategy with specific catalysts. However, the fund's performance variability and compounding mechanics necessitate disciplined risk management. For those with a bullish outlook on silver's fundamentals and a tolerance for aggressive positioning, AGQ could amplify gains—but only if market timing is precise.