Has Silver's Outperformance Reversed?

Much has been made recently about the recent strength in Silver, especially relative to Gold. Some pundits said the ratio between the two metals could continue to expand. Statistically, we know that trends often tend to revert to the mean ... and that anamolies in price performance between 2 related securities often dissipate eventually.

If you take a look at the price performance chart of the iShares Silver Trust (SLV) and the SPDR Gold Trust (GLD) ETFs below, you can see that the outperformance of SLV recently reached an extreme level. However, since about September 16th, we look to be heading lower in this ratio. Two previous outperformance spikes in SLV this year were reversed sharply lower to near the performance level of GLD. These previous instances were also mildy bearish indications for GLD, but relative to SLV it was an outperformer.

SLV vs. GLD Performance Chart

click to enlarge

I've mentioned several times previously that I like Gold over the very long-term due to worldwide fiscal policies. Shorter-term, I have written that Gold is having a healthy pullback within its uptrend. I maintain that the GLD has support around the 95 level, and pullbacks should be contained there (see the following chart).

GLD Daily Chart

Bottom Line: The outperformance of Silver vs. Gold looks to be correcting. If one thinks this discrepancy will continue to come in, one way to trade it would be to go Long GLD and Short SLV in a paired type trade.

Disclosure: No current position or recommendation.

Comments

[keithfeather:]

Interesting choice for a start date on the GLD SLV comparison. Why not use a start date of 6/08, and see a more plausible trend.

Sep 25 09:08 AM

[GMiki1:]

To analyze a trend reversal based on one week is peculiar. That week also happens to include a quardruple witching, an FOMC meeting, and the G20 confabs. Short silver at your own peril. (Not a good idea.)

Sep 25 11:11 AM

[MarvinMBA:]

I like silver

Sep 25 07:41 PM

[MarvinMBA:]

Our economy is still in trouble and I'm looking for more money production by the Fed, not less. As the economy tanks further the printing pressing are going to roll and roll. Bad economic news is good news for gold and silver.

Sep 25 07:43 PM

[HATEFEEBAY:]

15 ounces of silver for 1 ounce of gold in the world, yet silver is 2% of the price? Granted gols costs more to get, but there is a lot more gold on the surface than silver and that cost ratio is changing. Silver has a LOT more uses than gold and wait until you see what they will do with it in the medical community. It will make film silver use look like Chutes and Ladders! I am not downing gold, but the physical uses are limited and yes, you will do fine with it long term, but silver is clearly the better play to me at this level. I think within 10 years it will hit $70-$75 an ounce, and within 12 months $22-$24 with NO PROBLEM. People are watching the irresponsible US government print money and are getting nervous. With no world reserve fiat currency, metals will have to go up as like people, we need protection and why not use metals we can us and there goes silver up up up. Make your chart bigger my friend and see what it looks like! Long silver for me, and I am not in the business, I own a computer company in New Jersey.

Sep 26 11:44 AM

[EE:]

The uses for silver are growing, its market is much, much smaller than gold, silver is rare as industry uses it up, all the gold ever found is mostly still available, when just a few gold bugs realize silver is the better choice and switch and take delivery of the physical so industry can't find enough to keep plants open the race to $100/oz will begin. I'm guessing that will end the long term illegal gold/silver futures manipulations, cause all sorts of paper promises defaults and silver way beyond $100/oz will result. 2010 will be exciting for physical holders and junior silver stocks that have just started to mine and prove additional assets.

Sep 26 12:09 PM

[Vuke:]

Silver is eventually going to $100 an ounce for all the reasons cited above and more. Usages are increasing at a greater rate than any production increase and, like cheap oil, the easy supply has been picked off.

Disclosure: long silver, gold and oil, short paper ( have mortgage)

Sep 26 11:18 PM

[Gold Bug:]

Silver is the best hedge against Inflation Robert Kiyosaki
source :
goldbasics.blogspot.com

Oct 09 10:49 PM