To put it bluntly, uncertainty. Uncertainty in 2 areas: strength of the US (and world) economy, and the US-China trade war. This week the trade war is in focus so let’s look at that.
Investors are uncertain about the outcome of the US-China trade war, and they would love to position their portfolios to best take advantage of the most probable outcomes. But with China making a point of announcing they are sending their lead negotiator (interpret that as: hardest-to-make-a-deal-with), and limiting trade talks to non-policy topics, the uncertainty grows. Each side is now positioned as asking for what the other side explicitly doesn’t want to give. That generally means little actual progress will be made, though there will be lots of harrumphing and posturing and talking about “progress”.
Which should translate in real-world-speak to: Many donuts were consumed, coffee was drunk, transcontinental flights were taken, with no substantive real-world result.
The question right now is how much of this is already baked into the price of precious metals. Silver enjoyed a nice short-term run-up thanks to everyone noticing it was historically cheap compared to gold. But if that was the only factor it shouldn’t have dropped back so much.
So to this Gold Enthusiast’s view, investors are concerned about the US-China trade war, but not overly concerned about it yet. There’s good evidence of a sector rotation in stocks to defend against a negative outcome, but there isn’t yet a full flight to precious metals. We probably have a while to wait for that – evidence suggests that investors will need to run out of places to flee to in stocks before we see significant new money flowing into precious metals. Which likely won’t happen this week.
The iShares Silver (NYSE:SLV) was trading at $16.59 per share on Tuesday morning, up $0.29 (+1.78%). Year-to-date, SLV has gained 3.75%, versus a 9.00% rise in the benchmark S&P 500 index during the same period.
SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 33 ETFs in the Precious Metals ETFs category.
DISCLAIMER: The author has no position in any mentioned security. The author is long the silver sector via small positions in USLV, PAAS and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 72 hours.