Saturday, December 12, 2009

Gold or Silver? Long or Short?

I thought that since there has been much made recently of the move of Gold this past 6 months to a year, that I would comment on it as a current market play. And, I can't talk about Gold without talking about Silver because over the past 5-10 years, when Gold moves up, Silver moves up at a faster rate, and if Gold moves down, Silver moves down at a faster rate. So as far as I am concerned, the play when considering either as a stock play, Silver is the one to consider.

Let's start by looking at the 1 year chart of both precious metals below. The first chart is the 1 year Gold chart. It had a low of $815 and a high of about $1225/ounce for a gain of $410 from the low or 50.3% for Gold.

The second chart is the 1 year Silver chart. It had a low of $10.50 and a high of about $19.50/ounce for a gain of $9 from the low or 85.7% for Silver. You getting my drift here and why I have always written here that Silver is the play overall when considering the greatest gains during times of significant movement in price? Hope so!

Ok, now let's take a broader look at both metals on a 5 year chart for each. The first chart is the 5 year Gold chart. It had a low of $400 and a high of about $1225/ounce for a gain of $825 from the low or 206% for Gold.

The second chart is the 5 year Silver chart. It had a low of $6.50 and a high of about $20.90/ounce for a gain of $14.40 from the low or 222% for Silver. When comparing both precious metals now for both periods, it is clear that over the longer haul, Silver still outpaces the gains in Gold as a trade and particularly over the past year, while Gold has gotten all the attention, Silver was the trade play to make for the move up. You still with me? Ok, now to the final point of this post.

This last chart shows an ETF Ultra Short of Silver, symbol ZSL for the past year. You will notice it has had the inverse move of Silver to the downside. It had a high of $23.75 and a low of $3.66 for a loss of 84.6%. I bought the Ultra Short ETF, ZSL, because I expect that Silver is going to drop again and settle back to a more normal level and that the gains in this should far outpace any other investment. The reason is that if it goes back to where it was a year ago, you do the math. I just bought it at $4.24/share and if it goes back to its former 1 year high of $23.75, that's a gain of $19.51 or 460%. Now you get it! Even if it goes only half way back to where Silver drops back to only half of its price move, say around $13-$14/ounce, it is a huge percentage gain for this investment trade. Many say inflation is on the horizon. I say not for quite a while and this play will be over before that happens in my humble opinion. We still have some deflation out there. I think it's a no brainer.

And if you look carefully at the last 5 data points of ZSL on the 2 month chart below, you will notice it is headed up and the volume is strong. I think the case to consider this as an ETF stock to trade is strong. The three trend lines, the 9 day Moving average line as well as the 18 and 27 day resistance lines, have all fallen. We closed also above the 50 day Moving average line on Friday. Have I built a strong enough case fpr you yet to consider this?

Remember, I do not now your own financial situation and can't advise anyone as to what to do as you are responsible for your own investments and I am not a licensed financial advisor. I'm just someone trying to stimulate your thinking about your investments. But I would certainly talk this over with your own personal financial advisor and get some expert advice. Ok, I have given the obligatory cautionary note. The rest is up to you to check out.

Consider being a Follower of this Blog by clicking on the word "Follower" at the top of this page just above the WETHEPEOPLE title. Wishing you more prosperity and good health in the New Year.

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Anonymous said...

Show me the "Follower" statement! It ain't there on my page! Tom

5:51 PM  

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