Since the start of 2014, the price of silver has lagged the other precious metals in many ways. Silver has really only kept pace with gold — even as silver is thought of as a leveraged bet on gold prices. Silver has notably underperformed another white metal, palladium, which is currently nearing a 52 week high. The hangover in the silver market from the 2011 price explosion still seems to be persistent, even as silver is up over 10% from its last December lows. Because silver industrial demand is still off from its 2011 peak (though many sources claim it is at least increasing) and with evidence of stockpile increases at places like the COMEX, few are taking seriously the idea that silver will ever retake its former peak of around 50 dollars, let alone move decisively to even higher levels.
As an investor/speculator, thinking about how your assets perform during times of global political stress is a must. I realize that no one wants to wish for unfortunate things to happen globally, but the historical reality mandates otherwise. Increasing focus on the Russian military mobilization in response to civil unrest and the ousting of Ukrainian President Yanukovych should cause investors to ask whether or not they are truly diversified. Investors should seek out those investments that are truly non-correlated to the kinds of turbulence we are currently seeing in Eastern Europe.
According to some analysts, silver has just logged one of its longest periods of daily winning streaks (I think it was something like 14). Of course, in terms of price we are far from breaking any prior winning streaks since this most recent string of gains only took silver up about 11 or 12 percent in price. (In 1980, silver moved 50% up and down in a matter of days.) I would rather that speculators or investors understand that silver is an erratic metal– one that crushes the bulls and the bears with relentless moves– than have them attach too much importance to records like what we have seen recently. Many are often unable to stay on these moves in silver because they can’t believe how overbought (or oversold) the market has become.
Although silver did not move anywhere near its June lows during the December sell off– unlike gold– the silver price still failed to live up to its potential as 2014 got under way. Normally, you would expect silver to provide leverage to gold’s move, but that just has not been the case. On Friday, we finally saw silver jump significantly higher than gold in percentage terms. There is a large gap that needs to be filled between roughly 26 and 21- a gap that silver tried and failed to fill back in September. If you are trading intermediate term, it looks like silver might have a chance to do some catch up to gold and–especially– the mining stocks here in the weeks and months ahead.
Over the past couple of days, the performance of the gold and silver mining stocks deserves more attention than it is getting. As many of us argued, the collapse in mining stocks into late 2013 was nothing more than professional liquidation— meaning players who should have known better simply giving up and moving on to some other, hotter, investment. I’m sure many of these managers talked themselves into believing that gold and silver were heading far lower than in they in fact were, and I know that other asset managers had had enough of cost overruns and waste on the part of mining CEOs. Couple this with how loathed the mining shares were among gold and silver bullion investors (and I have the emails to prove it), and I felt you had all the ingredients for a great contrarian trade.