There would be little disagreement that silver outperforms gold in a precious metals (pm) bull market. There is also an argument that pm stocks give the investor additional leverage to outperform the metals. It is said the gold stocks outperform the gold metal by a ratio of 3-to-1. Maybe so. But, what has been overlooked by most is that silver as represented by SLV-ETF not only outperforms gold, it also shames the HUI, GDX & GDM by an easily recognizable graphic margin.
This strategy is only appropriate for those who already hold sufficient physical silver in their possession and which should not be utilized for ratio trading!
We have no bone to pick with gold; in fact, we have enough of it, and it is our 2nd best friend...for right now. What we're interested in in this instance given that silver outperforms gold, is how do the silver stocks given their leverage, do against the SLV? A very creative, original, and interesting link was sent my way a couple of days ago which spurred my fascination. A select few of silver stocks was compared by performance to the silver price. A performance ratio for each was the result, and indication whether a silver stock was "outperforming" or "underperforming" silver's price.
I ran the strategy through my own silver stock portfolio and was astonished at the recognized dogs I still possessed. Not only that, but being leveraged, stocks that are not leveraged to fully participate in silver's run were a ball and chain on my overall portfolio performance. Gotta look at the trees once in a while, not just the forest.
These two charts represent what I'm explaining. The investor in SIL would have had to come up with an ever increasing number of shares to buy the SLV. Conversely, SSRI has outperformed SLV taking a steadily decreasing number of shares to buy the SLV; a Ratio decline from 7.05 in May to 4.27 today is a percentage "gain" of 39%. You can run this exercise on just about any other investment consideration as well, such as the $CCI, for instance. Has oil been a better deal than silver? What about the NASDAQ? Some results from silver stock/SLV ratio comparisons appeared to trade within clearly defined channels. This is leverage, my friend! If you're a buy-n-hold silver investor, make sure the silver stocks your holding have long term (I used a 2-year period) declining ratios such as the SSRI.
-- Posted 18 January, 2007 | |
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