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Hi-Ho, Silver! The Precious Metal Could Make a Comeback
Silver may be on the verge of a turnaround relative to gold -- that could have big implications on risk sentiment.
Michael A. Gayed    

I'm always making a comeback, but nobody ever tells me where I've been.
-- Billie Holiday
 
Silver is often called "poor man's gold," given its comparatively cheaper price tag, as well as its behavior as a precious metal that moves not only on wealth preservation, but also as an industrial commodity. Generally, silver moves trendwise with gold, and in many ways can act as a leveraged way to trade precious metals. From the standpoint of intermarket analysis, the silver-to-gold ratio is particularly interesting. When bets on global growth and reflation are rising, silver tends to outperform gold; when fear is creeping in, gold tends to outperform silver.
 
This certainly has turned out to be the case with Ukraine-Russia tensions. Combined with global growth concerns and yields in the bond market dropping, it makes sense to see gold perform comparatively better. This may be about to change however. Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust (NYSEARCA:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
 


The ratio appears to be bouncing right off of support, and while the trend remains down, silver's price action may be indicative of global growth bets and another resurgence in emerging markets (EEM) to come. In particular, if silver ends up leading sustainably, the real place to make a bet might actually be the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI). With slowdown concerns persisting, silver (and copper) might move ahead of any new stimulus measures the government takes, in turn providing a boost to the equity side.

This movement seems to be somewhat justified given the behavior of Treasury inflation-protected securities (TIPS) as well. Take a look at how the iShares Barclays TIPS Bond Fund ETF (NYSEARCA:TIP) is behaving relative to the PIMCO 7-15 Year Treasury Index Fund (NYSEARCA:TENZ). Note the surge in buying as of late off of a long period of basing.
 


For the ATAC (Accelerated Time and Capital) models my firm uses in managing mutual funds and separate accounts, I remain defensive, but odds are growing of moving up the risk scale with the right setup. This is a strange juncture in many ways, given a mix of expansionary and contractionary signals happening at once within the marketplace. I suspect that Russia is only one part of this. High-beta momentum names breaking down as they did about a month back did ruin many technical patterns, while large caps keep holding on. If silver relative to gold rallies at the same time defensive sectors weaken, that may be the right environment for another leg higher. Should support hold there, we may see further improvement in risk sentiment more broadly in the weeks ahead.

Twitter: @pensionpartners
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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.

Hi-Ho, Silver! The Precious Metal Could Make a Comeback
Silver may be on the verge of a turnaround relative to gold -- that could have big implications on risk sentiment.
Michael A. Gayed    

I'm always making a comeback, but nobody ever tells me where I've been.
-- Billie Holiday
 
Silver is often called "poor man's gold," given its comparatively cheaper price tag, as well as its behavior as a precious metal that moves not only on wealth preservation, but also as an industrial commodity. Generally, silver moves trendwise with gold, and in many ways can act as a leveraged way to trade precious metals. From the standpoint of intermarket analysis, the silver-to-gold ratio is particularly interesting. When bets on global growth and reflation are rising, silver tends to outperform gold; when fear is creeping in, gold tends to outperform silver.
 
This certainly has turned out to be the case with Ukraine-Russia tensions. Combined with global growth concerns and yields in the bond market dropping, it makes sense to see gold perform comparatively better. This may be about to change however. Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust (NYSEARCA:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
 


The ratio appears to be bouncing right off of support, and while the trend remains down, silver's price action may be indicative of global growth bets and another resurgence in emerging markets (EEM) to come. In particular, if silver ends up leading sustainably, the real place to make a bet might actually be the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI). With slowdown concerns persisting, silver (and copper) might move ahead of any new stimulus measures the government takes, in turn providing a boost to the equity side.

This movement seems to be somewhat justified given the behavior of Treasury inflation-protected securities (TIPS) as well. Take a look at how the iShares Barclays TIPS Bond Fund ETF (NYSEARCA:TIP) is behaving relative to the PIMCO 7-15 Year Treasury Index Fund (NYSEARCA:TENZ). Note the surge in buying as of late off of a long period of basing.
 


For the ATAC (Accelerated Time and Capital) models my firm uses in managing mutual funds and separate accounts, I remain defensive, but odds are growing of moving up the risk scale with the right setup. This is a strange juncture in many ways, given a mix of expansionary and contractionary signals happening at once within the marketplace. I suspect that Russia is only one part of this. High-beta momentum names breaking down as they did about a month back did ruin many technical patterns, while large caps keep holding on. If silver relative to gold rallies at the same time defensive sectors weaken, that may be the right environment for another leg higher. Should support hold there, we may see further improvement in risk sentiment more broadly in the weeks ahead.

Twitter: @pensionpartners
< Previous
  • 1
Next >
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.

Hi-Ho, Silver! The Precious Metal Could Make a Comeback
Silver may be on the verge of a turnaround relative to gold -- that could have big implications on risk sentiment.
Michael A. Gayed    

I'm always making a comeback, but nobody ever tells me where I've been.
-- Billie Holiday
 
Silver is often called "poor man's gold," given its comparatively cheaper price tag, as well as its behavior as a precious metal that moves not only on wealth preservation, but also as an industrial commodity. Generally, silver moves trendwise with gold, and in many ways can act as a leveraged way to trade precious metals. From the standpoint of intermarket analysis, the silver-to-gold ratio is particularly interesting. When bets on global growth and reflation are rising, silver tends to outperform gold; when fear is creeping in, gold tends to outperform silver.
 
This certainly has turned out to be the case with Ukraine-Russia tensions. Combined with global growth concerns and yields in the bond market dropping, it makes sense to see gold perform comparatively better. This may be about to change however. Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust (NYSEARCA:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
 


The ratio appears to be bouncing right off of support, and while the trend remains down, silver's price action may be indicative of global growth bets and another resurgence in emerging markets (EEM) to come. In particular, if silver ends up leading sustainably, the real place to make a bet might actually be the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI). With slowdown concerns persisting, silver (and copper) might move ahead of any new stimulus measures the government takes, in turn providing a boost to the equity side.

This movement seems to be somewhat justified given the behavior of Treasury inflation-protected securities (TIPS) as well. Take a look at how the iShares Barclays TIPS Bond Fund ETF (NYSEARCA:TIP) is behaving relative to the PIMCO 7-15 Year Treasury Index Fund (NYSEARCA:TENZ). Note the surge in buying as of late off of a long period of basing.
 


For the ATAC (Accelerated Time and Capital) models my firm uses in managing mutual funds and separate accounts, I remain defensive, but odds are growing of moving up the risk scale with the right setup. This is a strange juncture in many ways, given a mix of expansionary and contractionary signals happening at once within the marketplace. I suspect that Russia is only one part of this. High-beta momentum names breaking down as they did about a month back did ruin many technical patterns, while large caps keep holding on. If silver relative to gold rallies at the same time defensive sectors weaken, that may be the right environment for another leg higher. Should support hold there, we may see further improvement in risk sentiment more broadly in the weeks ahead.

Twitter: @pensionpartners
< Previous
  • 1
Next >
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.

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