The sweet spot for seasonal strength in silver has just started. How does the seasonal trade line up this year?
Equityclock.com notes that the period of seasonal strength for silver during the past 20 years has been from Sept. 16 to April 11. The “sweet spot” is from the end of December to the end of February. The trade has been profitable in 11 of the past 16 periods including eight of the past 10 periods. Average return per period during the past 16 periods was 11.0 per cent.
Seasonality in silver is influenced by an increase in industrial demand during its period of seasonal strength. Approximately 40 per cent of silver is used industrially – in solar batteries, water purification systems, cellphones, circuit boards, plasma televisions and radio frequency identification devices (RFIDs). Growth in excess of 10 per cent per year is expected to continue in these sectors. The demand for silver for photography purposes continues, but at a diminished level. Demand for jewelry continues to increase at a slow rate with growing discretionary income despite the higher price of silver. Demand for jewelry has been notably stronger in countries such as China and India.
Demand for silver is expected to exceed supply in early 2012 because of an unusual non-recurring event. Thailand is expected to recover from a major flood experienced in the fourth quarter. Thailand is the world’s largest assembler of electronic devices. Many of its electronic assembly plants were shut down by the flood. Demand for silver used in electronic components slipped briefly, but is expected to recover early this year.
On the charts, silver exchange traded funds, trust units and related silver equity ETFs have an unusual technical profile. Silver bounced from intermediate support at $26.15 (U.S.) last Thursday and recovered to $29.17 Wednesday. Short-term momentum indicators including stochastics, relative strength index and moving average convergence divergence are deeply oversold and turned positive Wednesday.
A wide variety of investment opportunities are available in the sector. Best known and most actively traded security is the iShares Silver Trust . Sprott Asset Management offers its Physical Silver Trust . Global X offers the Global X Silver Miners ETF , an ETF that holds a diversified basket of 25 silver producer stocks. Holdings include Pan American Silver, Silver Wheaton, Hecla Mining, First Majestic Silver Corp. and Silver Standard Resources.
Bull and Bear ETFs that offer two times the daily change in the price of silver also are available in U.S. and Canadian dollars. Horizons also offers the Horizons COMEX Silver ETF , a unit based on COMEX futures contracts that trades in Canadian dollars and is hedged against U.S. dollar fluctuations.
The above chart represents the seasonality for silver futures continuous contract for the past 20 years.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by JovInvestment. JovInvestment is the investment manager for the Horizons family of ETFs. Daily reports are available at http://www.timingthemarket.ca/