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 precious metal often sees gains from the end of December to the end of February. The trade has been profitable in 12 of the past 17 periods, including 9 of the past 11 periods. Average return per period during the past 17 periods was 12.0 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 by these sectors. Growth this spring is expected to be particularly strong due to the rising demand for smart phones. Demand for jewellery continues to increase at a slow rate with growing discretionary income. Demand for jewellery has been notably stronger in countries such as China and India. Demand also continues to grow for investment purposes, most notably for backstopping silver exchange traded funds.
On the charts, silver at $30.34 (U.S.) and its related exchange traded funds, trust units and equities are showing early signs of bottoming, but have yet so show signs of acceleration. Silver found support at $29.64, near the top of a previous trading range, an encouraging sign. However, silver also remains in an intermediate downtrend and trades below its 20-, 50- and 200-day moving averages. A move above its 20-day moving average is expected to trigger technical and seasonal buying.
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 and First Majestic Silver Corp.
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.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Daily reports are available athttp://www.timingthemarket.ca/. He is also a research analyst for Horizons Investment 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 Horizons Investment Management.