Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Don't Be Fooled by the Silver Boost


Despite the recent spike in silver prices, equities are likely still the better play.


Don't bottom fish.
-- Peter Lynch

I noted in a prior article here on Minyanville that I did not believe the decline was over just yet in precious metals, and that we could be entering a period where "paper beats rock" as bonds and stocks begin to potentially sustainably outperform metals. (See Gold and Silver Weakness Not Over.)

With the spike up in silver prices as 2012 begins, it's easy to believe that a resumption of the uptrend in "poor man's gold" returns right here, right now. I remain skeptical that this is the case, though, unless a longer-term period of reflation is in the cards.

Take a look below at the price ratio of the iShares Silver Trust ETF (SLV) relative to the S&P 500 (IVV). As a reminder, a rising price ratio mean the numerator/SLV is outperforming (up more/down less) the denominator/IVV.

Click to enlarge

Note that the tremendous outperformance in silver got completely undone by the end of 2011. Despite the spike in the ratio on the far right of the chart though, the trend still very much looks down. What this means is that if you're bullish on silver, you should be much more bullish on equities, as silver's underperformance trend appears likely to continue. I will take this a step further by stressing the possibility that the above ratio goes all the way back to 2010 levels.

What could cause such substantial weakness in silver? The answer is silver's history itself. Notice that 2011 was a heartache year for investors in silver. There were two tremendous knockdowns between the collapse in late April and sharp crashlike move in mid-September. Because the two declines happened so close to each other, it is doubtful animal spirits and excitement will return any time soon. Once burnt, twice shy, thrice stay far, far away. And besides, wouldn't you rather invest early in a new leader than late in an old one?

Twitter: @pensionpartners

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.

No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos