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
TheStreet Open House

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?

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?

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

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,116.14 +44.92 0.26%
S&P 500 1,981.31 +3.51 0.18%
NASDAQ 4,514.5410 +8.6890 0.19%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs