Was That the Top for Silver?

 |  Includes: AGQ, DBP, DBS, DRN, DZK, SLV, USD, UXJ, YINN
by: Michael A. Gayed, CFA

I know the article headline above is likely to generate quite a bit of emotion from both bulls and bears (mostly bulls since I never hear a bearish argument for Silver), but I wanted to at least entertain the idea that the extreme in Silver is here. There have been a number of comparisons equating Silver's price rise to that of the NASDAQ in the 6 years leading up to 1999, whereby the price gains and rate of ascent have been strikingly similar. The volume of Silver ETFs have exploded in recent weeks, with what used to be full trading day volume now occuring within the first two hours of the trading day. In addition, a popular closed-end fund that tracks the price of Silver is reportedly trading at a 20% premium to NAV, which is of course like saying one is willing to pay $1.20 for $1.00 (a not so good trade in my honest opinion).

No one of course knows if prices are too high except with the benefit of hindsight (which is one reason I prefer looking at investments relative to another, instead of in absolute terms). However, I wonder if we are at the edge of some kind of a mean-reversion moment for all commodities, and more specifically Silver. I ran a screen of over 800 ETFs/ETNs to identify those which are furthest away from their respective 20 day moving averages. I've included leveraged funds in the screen to provide some context.

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The above are the 10 most extreme ETFs/ETNs relative to their respective 20 day moving averages. What is most incredible about this list is that Silver on an unleveraged basis (NYSEARCA:SLV) ranks 2, and is further away from its 20 day moving average than many 3x leveraged funds! The extreme nature of the price rise is worth considering as a contrarian trade, especially in light of recent performance when compared to other investments. So once again, while no one can predict tops and bottoms except with perfect hindsight, it is worth considering that the recent price action may warrant skepticism that we are actually much closer to a near-term top than a longer-term bottom.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing.