The Best Investment of 2012 to Repeat in 2013?
Toward the end of last year, the editors here at Port Phillip Publishing got up on stage at our Doomers' Ball, to give our 'Big prediction for 2012'.
To paint the picture, at the end of 2011 the market had been well and truly beaten up.
The Metals and Mining index (XMM), Small Ords (XSO) and Emerging Companies indices (XEC) all fell more than 22% over the year. So it was a bit challenging to find a sunny patch in the market to get excited about for a 'big call for 2012'.
Admittedly, when I made my call, there was a fair bit of heckling!
I even caught a few folks checking their eyelids for holes, and catching the odd fly for good measure.
But thankfully, twelve months on - so far - my big call has turned out to be the best performer of 2012...
What was the call?
It was SILVER.
So far this year silver has gained 18.4%.
For comparison gold has gained 8.8%.
The Metals and Mining index (XMM), Small Ords (XSO) and Emerging Companies indices (XEC) are all down again.
The S&P500 is up 12%, and the ASX200 has surprised with a gain of 11%.
The only thing supporting our market is the financial sector: the ASX200 Financials index (XJF) is up 18%. So the Aussie banks were one of the few sunny spots.
But humble silver still beat them, and with a lot less effort involved too.
Just the Start for Silver
The downside with silver is that it comes with plenty of volatility. All the silver bullion globally is worth just $60 billion - just half the size of BHP Billiton's (ASX:BHP) market cap. So the price can be prone to some big swings.
The upshot of this is that, if you get the timing right, you can trade it for accelerated profit. Back at the end of July, I wrote to you to say:
'Watch silver. It looks interesting [...] it looks increasingly as though the worst may be over...
'While gold has gained an average of 17% a year in $US terms, silver has outshone it, gaining an average of 22% each year. The trick to profiting from this has been buying on the dips to get these gains - and just maybe we are staring at one of those dips right now.'
In the four months since I wrote to you about this, silver has gained 18.4%. This is equal to its overall gain over the whole year.
Silver - a gain of 18.4% makes it the best performing asset of 2012
Source: Stockcharts, MM edits
The good news is that it looks like silver's move has only just started in earnest.
The effects of the latest round of quantitative easing (QE) have only just started flowing through into the silver price.
During the first round of QE, silver gained 74%; and during QE2 (starting from the Fed pre-empting the program) silver gained 94%. These are huge moves for any commodity.
So with the Fed now 'printing' $40 billion a month indefinitely, silver is well poised to maintain its new rally.
It's critical to note that silver was the best performing asset class during Obama's first presidential term.
The humble metal more than tripled, gaining 208% over the four-year period.
The only other asset to put in a triple-digit percentage gain was gold, with 122%.
This incredible performance is probably why the US mint has just had its busiest month on record. The prospect of another four years like the last four, with money printing, debt and fiscal deficits, is very bullish for precious metals.
Silver's technical chart looks excellent as well.
A Great Investment Opportunity
When the technical price action backs up the fundamental picture - it can often translate into a great investment opportunity. In other words, if the idea is good, and the timing also looks right, then the shot could be a winning one.
To get here, the market has been through some pain in the last 18 months. The second half of 2011 was horrendously volatile for silver. It set a record high on Anzac Day, only to fall more than 30% within weeks straight after. Then in September, silver got smashed down by 30% AGAIN.
Most of this year has been spent regaining its footing after last year's abuse. It has taken time, and many speculators have left the market, understandably fed up with the volatility.
But this mass clear-out has set the stage for the next leg up. The technical chart confirms this and has turned bullish again. In late September, silver traced a golden cross. This technical signal has been a solid predictor of the start of a new up-trend.
Even better, since then the 200-day moving average held fast during its test. Now silver has broken up above the 50-day moving average - and stayed there. This paints a bullish technical picture of a price in strong uptrend.
All the stars seem to be aligned for silver now.
We didn't have a 'Doomer's Ball' in 2012, as we hosted a big conference in Sydney earlier in the year.
But if we had to go on stage today and make a big call for 2013, I'd have found it very hard to look past silver - again!
Dr Alex Cowie
Editor, Diggers & Drillers