Morning Futures Thoughts – The Silver Lining of a Gold Investment Cloud
Silver and gold, silver and gold – numerous song lyrics contain these words. When one thinks of gold, silver is often the next word that pops into your mind.
However, for some reason, investors are often only focused on gold. Maybe it’s the high price or the media hype, but the truth is Silver deserves more than a cursory look when choosing a trading/investing vehicle in the precious metals.
Silver is truly gold’s baby brother when it comes to the chart. As you can see from the London fix charts, both gold and silver had a little more than tripled in value since 2000. The primary difference is the rate of change, gold has been in an uptrend from 2000 to triple in value, silver was relatively flat until 2004 before the uptrend began to triple. In percentage terms over time, silver has recently grown at a much faster rate.
In the 1970’s, silver traded in the $50.00 oz range. According to material from silver promoters, the US dumped its vast store of Silver on the market during this time, depressing the price. This hoard of silver is long gone and the US Government is now a buyer of silver.
How does one go about trading silver? The easiest way for the active trader to get his/her feet wet in the market is the CBOT’s E-mini Silver contract symbol YI. This contract represents 1000 oz of silver and can be traded with only $1500.00 margin per contract. Each tick is worth $1.00 or .001 cent per troy oz. Fundamentally, silver looks like a good long term investment, in the short term, it’s a tough call.
In my opinion, silver is definitely worth watching over the next several months for opportunities that may develop both on the long and short side. An interesting trading tactic would be to chart the gold and silver minis as a pair, watch for divergence then enter a trade in the hope that they will come back to the mean price within the time frame you set for the trade.
Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.