Watch silver.
It looks interesting.
I know only too well that holding the silver price hasn’t been much fun over the last 12 months. But some signs of life have recently appeared. It has found support yet again around the US$27 level, and has just bounced above the 50-day moving average for the first time in over 4 months.
Silver – The Sell Off Almost Over at Last?
I wouldn’t expect it to turn a corner and go to the moon in ten minutes from here, but I would say that it looks increasingly as though the worst may be over.
As these things tend to, silver may need to do a bit more ‘work’ around here, and retest the $27 level a few more times before anything happens. But it’s definitely worth keeping a watch on it in the next few months.
If Super Mario decides to go guns blazing this week, then silver could rally soon. Historically, silver is one of the best performers when the central bankers bust out their best dance moves. Silver comprises a small market, so it’s very sensitive to excess liquidity looking for a home.
For example, the trillion euros of Long Term Refinancing Options (LTRO) from the ECB during the first quarter of this year saw the silver price rally 37% from $27 to $37. And during QE and QE2 it increased at twice the rate that gold did, with silver almost doubling during the first run.
But be warned, silver can fall as fast as it rises. It’s not for the risk averse. Gold should form the core of a precious metals holding, with a bit of silver added too.
When asked how much of a portfolio should be allocated to silver, ultimate silver bull, Eric Sprott took a more aggressive view:
‘Put it this way – whatever percentage it makes up of your portfolio today, by 2020 it will increase in value so much it will make up more like 100%’.
That sounds a ‘bit’ on the bullish side to me, but I do think that we may be looking at a floor building in silver, which could mean the next leg up is coming soon. Silver has long alternated between extreme rallies followed by painful crashes.
But overall, this see-sawing has seen silver rising over the last 11 years. While gold has gained an average of 17% a year in $US terms, silver has outshone it, gaining an average of 22% each year.
The trick to profiting from this has been buying on the dips to get these gains – and just maybe we are staring at one of those dips right now.
Dr. Alex Cowie
Editor, Money Morning
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