Gold’s Not-So-Boring-Cousin: Silver

Just about 6 months ago we were talking about how Silver had rallied about 100% since the March lows, saying rather sarcastically:

What’s going on – did Silver become a SAAS company in search of a ludicrous P/E multiple? No. This is overflow and unintended (or maybe intended) consequences of printing all that money for Coronavirus relief. A bet against the dollar. A bet on inflation (someday). Or, a bet on Gold without buying Gold – getting much of the benefit without the high cost.

If July was surprising, clean the fog off your glasses because as of early February, Silver hit an 8-year high jumping ever so briefly above $30/oz in the futures. And this time, maybe it really was in search of some crazy tech multiple. There were inklings of rumors going around that the same GameStop trolls/heroes were behind the magic rise in silver price:

 A “short squeeze” on the silver bullion market became the hot topic of discussion on the Reddit site WallStreetBets last week and over the weekend. Stocks related to silver soon saw their value spike for no apparent reason.

First Majestic Silver, a Canadian silver-mining company with the ticker symbol AG, maintained a stock price of around $14 a share for most of this month, but then shot up 21% on Thursday after the Reddit discussion. Fortuna Silver Mines saw its share price rise 14% Thursday to $7.62. The iShares Silver Trust, an exchange-traded fund that tracks silver prices, rose almost 6% Thursday to nearly $25 a share. (CBS News)

But as we said in our original Silver post, this is exactly why trend followers, particularly systematic trend followers, have markets like Silver in their portfolios. They don’t care if the asset has never had a positive year in its existence! They don’t care because they look for asymmetric bets which payoff when outlier moves happen in either direction.

You never know when the next big outlier move is going to happen. You never know when the next swing is a home run. And, to keep the baseball analogy alive – the strike out is barely an out at all. It is infinitely less punitive in terms of game theory than 1 of the 3 outs you get in baseball. Assuming a risk per trade of 0.25%, this game has 400 outs – making a strikeout rather immaterial.

But you still go to the plate – because this happens – where Silver rallied 80%+ in 2010, returning 10x that initial 0.25% risk. Now, add 40 to 80 more markets across energies, currencies, interest rates, equities, agriculture, and more – and you see the game trend following is playing. (Hi Ho Silver)

So, we don’t know where Silver’s going. Nearing the end of February, Silver is still holding strong. And we don’t really care about the narratives, except to say if you do want to play Silver – don’t buy crazy overpriced coins or bars. Buy futures and take delivery for a warehouse receipt so don’t run into the problems below:

Physical silver is almost impossible to get right now, although it is getting a bit better. Ultimately, the markup is ridiculous, and therefore you have to be very cautious about buying physical. Recently, I have seen silver rounds sell for as much as $40. This is a complete disconnect from the futures market…(FX Empire)

We for one, will be keeping an eye out for higher prices and potential wallstreetbets infiltration.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

logo