Can silver shine again?

A turnaround looks to be underway in the precious metals as the fiscal fight deepens.

By InvestorPlace Oct 7, 2013 2:46PM

Image: Metal Bars (© Corbis)By Anthony Mirhaydari

 

Since the post-recession global growth rate, and inflationary pressures, peaked in 2011, precious metals have been a disaster zone featuring short, counter-trend rebounds in the context of a long, sickening slide. Gold has lost 32% over that time. Silver has lost more than 56%.

 

The slide intensified earlier this year as it looked like the Federal Reserve would pull back on its $85 billion-a-month bond purchase program. And even now, in the midst of the government shutdown and the approaching debt ceiling deadline, both gold and silver have been in a month-long pullback.

 

That's changing on Monday as silver blasts back above both its 20-day and 50-day moving averages. (Gold is also moving, but the rebound is less intense.)

 

What's driving this?

 

For one, the market's recent complacency with the fiscal battle in Washington is giving way to a realization that no compromise is coming and that we're likely to run straight into the Oct. 17 debt ceiling deadline. Once we pass that date, Social Security checks could soon be delayed, the credit rating agencies could render more downgrades, and the markets will have no choice but to react in a repeat of the August 2011 chaos.

 

 

Both President Obama and House Speaker John Boehner are digging into their positions. Obama doesn't want to negotiate unless the government reopens and the debt ceiling is raised. Republican Boehner wants a one-year delay of the Obamacare individual mandate and claims that there aren't enough votes in the House to pass a "clean" continuing budget resolution.

 

The spirit of bipartisanship is buried six feet under.

 

Two, the dollar is looking vulnerable to a breakdown here that could potentially send it below its mid-2011 lows. That would be inflationary, since it would boost import prices.

 

And three, there  is an intensifying scramble by investors into safe haven assets. The iShares 20+ Year Treasury Bond (TLT) just posted its first upward cross of its 20-day and 50-day moving averages since April. The CBOE Volatility Index is on the move too, returning to highs seen briefly in December during the fiscal cliff fight and again in June during the selloff over the threat of a Fed "taper."

 

If the VIX pushes above 20, it would break above its 200-week moving average for the first time since the August 2011 debt ceiling fight -- and end the three-year volatility downtrend that followed.

 

Silver's role as a safe have, an inflation hedge, as a dollar alternative, and as a refuge from the buffeting about to hit stocks should keep its new breakout going. I don't know how long it'll last, but it's definitely tradable.

 

In response, I'm adding the VelocityShares 3x Silver (USLV) to my Edge Letter Sample Portfolio. An existing position in the VelocityShares 2x VIX (TVIX) is already up 15% since I added it on Oct. 3.

 

Other less leveraged options include the iShares Silver Trust (SLV) and the ProShares Ultra Silver (AGQ).

 

Disclosure: Anthony has recommended USLV and TVIX to his clients.

 

More from InvestorPlace

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

 


 

11Comments
Oct 7, 2013 3:23PM
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If you're going to put 22 dollars in the bank, buy an ounce of silver instead. Silver compared to a US Dollar over the past 100 years has only gone one direction and that is up. Seems like a no brainer to me.

 

If the Fed does the right thing and stops printing, the bubble economy crashes. Yeah, silver will come down in price but so will everything else. It oughta at the very least hold its purchasing power against a basket of goods.

 

If they do the wrong thing and print, they are the only ones who will be buying US Debt. The stock market and certain asset classes stay in a bubble, while the middle class and poor continue to get squeezed by price inflation of food and energy.

 

I say they print and print since they are in the business of protecting the big banks and their interest rate dependant balance sheets. If the interest rates rise, the banks balance sheets are toast.

 

Oct 7, 2013 3:13PM
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I thought we got rid of you, Tony. Unless you are buying PHYSICAL silver and/or PHYSICAL gold, you can forget about cashing in your paper 'futures' on anything even close to their face value (Cash value= 1/20th of one cent)
Oct 7, 2013 4:59PM
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Silver has the fewest years worth of reserves compared to gold, platinum, palladium. Only 12-20 years under our current standards, which of course could and will change with price, new discoveries and recycling. But that is still less than the other precious metals. At least according to what I have read. So use it for money or as a commodity, it plays that role better than gold, especially for the common person. 
Oct 7, 2013 4:12PM
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Anybody starting to see that the Federal Reserve itself can go BUST? You can't get blood from us turnips until you fire your deadbeat relatives and put competence and ability back where it belongs. During the French Revolution- France crashed. Ivy League losers rolled-out globalization because they couldn't keep the doors open on the businesses they got hired into. Looks like the only thing it did was to pull the whole world down. THIS IS GOING TO HURT. 
Oct 7, 2013 4:08PM
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YES TONY... go all-in in "silver". Haha. You'll have nothing soon enough. 
Oct 7, 2013 6:22PM
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I could agree with Antman that Silver could be poised for an upside, but a breakout not really sure?

 

It has been depressed more (percentage) then Gold in recent times or months...

 

Within the last 52 weeks, trading at about $34.50 (high) in Oct. 2012....

Seems it did brush the $50 dollar an ounce mark in 2011; Might have been an Intraday High ??

But did have a closing price in late April 2011 of about $48.70 per.

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