Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Silver Looking Brighter Than Gold

Published 08/21/2012, 02:02 AM
Updated 07/09/2023, 06:31 AM

“Sometimes you're in great demand. Then suddenly your career hits the breaks.” - Gary Sinise

As the Summer Surprise of higher highs, persistent reflation, and the end to the end of the world trade continues, I have been receiving questions about commodities, specifically as it relates to silver (SLV) and gold (GLD). Often referred to as “poor man's gold” given that it generally trades at a discount to the yellow metal, silver relative to gold appears to have washed out. I have been noting that I believe the next wave higher for risk assets could easily be led by emerging market stocks and commodities, but within that trade, silver looks to be more sensitive to a return of growth expectations. Why? Because relative to gold, silver is used more in industrial production comparatively speaking.

With that said, take a look below at the price ratio of the iShares Silver Trust ETF (SLV) relative to the SPDR Gold Trust ETF (GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
SLV-GLD CHART
Silver massively outperformed gold from August 2010 to April 2011, and sharply weakened as margin requirement were increased. Much of the continuation of that weakness appears to be related to the deflation scare that picked up during the Summer Crash of 2011. Higher sensitivity to industrial demand meant that as risk sentiment turned more depressive, gold performed better simply because demand is more driven by jewelry and for investment purposes. Notice the far right of the chart, which shows that the ratio appears to have not only stabilized, but may also be in the early stages of leadership. I believe this is because expectations are increasing on industrial demand. For now then, poor man's gold may be a better trade than gold itself.

Disclaimer: 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.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.