Navigating the Silver Mania: Exiting Long Positions May Be Prudent

Apr. 18, 2011 2:49 AM ETSLV, GLD8 Comments
Eric Parnell, CFA profile picture
Eric Parnell, CFA

This post is the latest in an ongoing series providing a detailed analysis on investment strategies outside of the stock market leading up to the end of QE2. The original post in this series is Best Post-QE2 Opportunities Lie Beyond Stocks.

Let me begin by saying that to this point I’ve been an unwavering silver bull for the last couple of years. Two key factors make silver appealing. As a precious metal, it provides hard asset protection against inflation and the declining value of the U.S. dollar. And as an industrial metal, it provides exposure to increased demand from the global economic recovery. I began buying silver via the iShares Silver Trust (SLV) back in April 2009 at just above $12 and continued to buy through May 2010 at just above $17. And I remain long silver today.

Despite all of my enthusiasm for silver to this point, the time may be coming soon to head toward the exits. Silver is now fully engaged in a mania phase. And while we may see some further upside in the weeks ahead – perhaps even another +20% before it’s all said and done - we may now be in the very late innings of the powerful silver run. Three key indicators support these notions.

1. Gold / Silver Ratio

One way to evaluate the price of silver is to compare it relative to gold. While the point is well taken that 17 parts silver exist in the earth’s crust for every 1 part gold, this has not served as basis for the price ratio between these two metals for well over a century. Instead the gold/silver ratio has averaged well above this level. For example, this ratio has averaged 52:1 since 1968.


As recently as late last year, silver represented an

This article was written by

Eric Parnell, CFA profile picture
Chief Market Strategist, Great Valley Advisor Group and Assistant Professor of Business and Economics, Ursinus College

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