The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- Many readers of
have been asking about silver due to the volatile movements in that commodity this week. We will comment on metals in general, and silver in particular, and suggest a couple of alternatives in this article that may make sense. Realize that in a market such as the metals, we are aiming at a moving target, so to speak. We also advise anyone thinking of trading the commodities, and not the ETFs, to talk to a financial adviser well versed in these markets.
Historically, when silver starts to outperform gold, the metals markets are ripe for a correction
. A look back at the late 1970s/early 1980s and the Hunt brothers' debacle is one good example of this. Interested readers can locate daily charts of gold and silver and see that the metals markets moved in a series of gaps to their ultimate highs, and then more gaps occurred on the way down. Silver has always been called "poor man's gold" because it is cheaper to trade -- and because of this, the retail traders generally pile into this market at the wrong time.
While we believe in the inflation trade, at
, we have had a longstanding price objective of $1,520/oz on Gold (152 on GLD). When that was hit, we advocated selling the metals down to an underweight until a sharp correction had occurred. This is occurring now. We will move to an equal weight at an appropriate time to take advantage of our new 12-month price objective of $1,690/oz (169 on GLD). We hesitate to give levels due to the volatility of
GLD, but we might get a signal to enter in the 140 area
. We show charts of GLD and SLV below, so readers can see the extent of the correction. Realize, because of the different way margin works in commodities, that tops in futures markets have a tendency to be quick and volatile, unlike stocks, which tend to make a rounding top when starting a bear market.
, we tend to take a portfolio approach to investing, perhaps because many of our clients are financial professionals. However, even for individual investors, there are some other investments that could outperform in an inflationary environment, while diversifying risk away from the metals. These have all been discussed over the last year, in
. First, look at Australian ETFs, both their stock market and currency markets.
The Australian markets contain stocks that are sensitive to raw materials and commodities. You can see that FXA has outperformed the dollar as well. We show a daily chart of the OEF and UUP to compare with Australia (above) and Canada (below)
The Canadian markets are also sensitive to raw materials, and are inflation beneficiaries. Their stocks have performed well enough, although a little less well than the big-cap U.S. stocks represented by OEF. The Canadian Dollar has, however, substantially outperformed the U.S. unit.
We believe that commodity inflation is more than transitory; it is becoming embedded in the economy.
The alternatives presented here are interesting intermediate-term ideas to capitalize on these trends, yet are unusual enough not to be widely adopted until later in the cycle. As such, they are worthy of consideration.
Fred Meissner is founder and publisher of
. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report. A detailed bio is here: