This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Silver Is a Better Buy than Gold

NEW YORK ( TheStreet) -- In moves rarely seen these days, exchange-traded funds that track valuations in precious metals are surging into the later parts of this week.

These moves came after comments from Federal Reserve Chairman Ben Bernanke, which showed the central bank remains committed to holding interest rates near their lows -- even if we do see modest improvements in the labor market.

The effect on commodities prices was pronounced, with gold seeing single-session gains of more than 3%, silver rising by 4.6% and oil moving to 15-month highs after the latest Fed meeting minutes were released. But does this signal a true reversal in the badly beaten precious metals space? Should investors start looking to build new long positions?
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/11976582/1/prepare-for-a-flood-of-bank-earnings.html"><em>Prepare For A Flood Of Bank Earnings</em></a>]

Earlier in the year, metals investors holding positions in products such as the iShares Silver Trust (SLV), the iPath Dow Jones UBS Copper Total Return Sub-Index (JJC) and the SPDR Gold Shares Fund (GLD) had high hopes for major bull rallies.

In an economic environment supported by central bank stimulus, many metals forecasts suggested gold and silver would be used as an inflation hedge, an alternative to a weakening U.S. dollar, and protective safe haven in times of economic turmoil.

Even alternative scenarios were bullish as a strong economic rebound would stoke both luxury and industrial demand (silver, in particular, is a key component in everything from automobiles, to electronics, to solar panels).

But the market reality was quite the opposite, and the commonly-traded GLD and SLV ETFs have already seen massive year-to-date losses of 22.6% and 33.5%, respectively. These moves were perhaps most surprising in silver, given its importance as an industrial metal. But with weakening manufacturing data in emerging markets and not much evidence of progress in the global recovery, there have been few reasons to buy -- and silver has had its worst performance in nearly 30 years.

Potential Reversal?

So, what does all this suggest for the short-term rallies seen this week? Are we seeing the beginning of the end for the bearish moves in silver and other precious metals?
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/11976512/1/why-jeff-bezos-will-always-be-a-winner-and-tim-cook-will-always-be-a-loser.html"><em>Why Jeff Bezos Will Always Be a Winner and Tim Cook Will Always Be a Loser</em></a>]

Given the strength of the longer-term trends, there is not much to suggest that this week's activity marks a true bottom. From a fundamental perspective, demand remains weak while supply moves in the opposite direction. But when we compare silver prices to its main counterparts, there are some reasons to expect moves higher in silver on a relative basis.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SLW $17.34 2.30%
AAPL $126.44 -0.13%
FB $87.28 0.43%
GOOG $523.40 0.30%
TSLA $280.02 4.04%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs