Important Distinction Between Gold & Silver
Silver has had an insane run in recent months and I’m starting to think that the short-term run might be over. Silver has sort of gone mini-parabolic with gold not really following suit. As such the ratio of gold:silver has dropped significantly. Enough to consider selling your silver positions and buying gold positions.
The biggest distinction between the two is that gold is much more of a monetary metal than silver. Now, lots of silver purists will bark at this statement, and for good reason, but let me explain. Silver is a monetary metal in terms of the common man. Gold is a monetary metal in terms of central banks. While both are important, I believe that we’re slowly witnessing a massive change in the global monetary system and as such, what the central bankers are doing is likely to be very important and key to fueling gold higher.
As gold shoots higher in the future, silver will indeed go along for the ride, but the short term drop from overbought conditions might hamper those future returns. I’m not bailing on silver, but I am re-weighting my positions. I sold my SLV positions when silver was in the mid/high $30’s and bought CEF. I’m selling most of my CEF right now and buying GTU. With the depressed gold/silver ratio, now is a good time to exchange silver for gold.
The precious metals plays is a part of a major trend, a macro play that is a multi-year play. In such plays, over-trading is usually detrimental and hurts your returns rather then letting the play develop and run its course. With that said, the move in silver was so enormous in recent months that I believe some level of action is warranted.
Take a look at silver:
As you can tel, the run since August 2010 has been nutty. From under $20 to just under $50 in a pretty quick time line. My rule has sort of been to buy silver up to $50 per ounce, but as the velocity increased, I put that rule on hold. With the move complete, I changed it further to actually sell silver positions and put it into gold positions.
Please note that I have some physical silver that I’m holding long term regardless of price action. This post is referring to my silver / gold positions such as SLV, GLD, CEF, GTU, etc.
The peak has been put in on silver for the time being. If the 50 day moving average breaks or so, it could be really interesting and we could see a correction maybe even into the $20’s. Assuming the macro themes are still in tact (which i believe they will be), I would absolutely be a buyer there.
If you’re looking to get silver exposure there might be better buying opportunities ahead.
Again, I don’t want to overthink the room here and trade in and out of positions with a high frequency as I’m trying to let the macro trends take care of themselves regardless of price action, but the move in recent months has been so big that I believe the circumstances warranted taking a closer look.
I welcome any feedback.