1) Gold has not closed below 2 consecutive months since it started its bull run in 2001. Consecutive 2 down months is an ideal period to add positions on dips. Any dips should be bought and held till we reach the end of this bull market. The rising 12 month moving average of its volume suggests this bull is strong and is a long way from maturity any time soon.
2) Silver is strongly correlated with gold with a higher beta (volatility). Since 2001, gold has returned 459% in nominal dollar terms, whereas silver has returned 688%, outperforming gold by 40% since 2001. In contrast, the commodity complex returned 52% over this same period, highlighting the monetary qualities of both precious metals against the backdrop of the present global monetary base expansion. Silver's superior long term outperformance is expected to continue.
3) As silver's long-term performance is fraught with a high degree of volatility, I suggest the following tactical approach to investing in silver:
When the gold/silver ratio (5th box, grey line) is above the silver/gold ratio (black line), it means that gold is outperforming silver. When the spread between them is wide enough, it is the optimal time to sell gold and hold silver. I've highlighted three instances in 2003, 2004 and 2008(in dotted vertical line) when this occurs. Vice versa, the best time to sell silver and hold gold is either when the spread is narrow or when the silver/gold ratio (black line) is above gold/silver ratio (grey line). This spread position trade or relative strength tactical approach potentially maximises on the outperformance of the stronger metal at any one time while continuing to stay invested in precious metals for the long term.
This strategy favors gold at this moment.
Good luck to all.
No comments:
Post a Comment