Commodity ETF Trends: Silver Breaks Out, Gold Steady Amid Commodity Strength

02/20/2011 Share 0 comments

Amid steady up trend of U.S. stock markets, silver (SLV) finally broke out last week, ending the week with 8.8% gain. SLV is now above the previous high $30.18 per share, achieved on 12/31/2010. It closed on Friday at $31.79, a historical high. 

Gold (GLD) was also steady, closing the week with 2.3% gain, though its Friday's closing price $135.47 is still below its recent high of $139.11. For more commodity performance details, please refer to  here.

The following trend table shows the trend scores of commodity ETFs. Silve (SLV) is retaining its first place, way ahead of the second place agriculture ETF (DBA). It should be noted that DBA still has quite some way to go to break out from its previous high $42.03, achieved on 6/30/2008, right before the financial crisis.

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

Silver, as proxies to both industrial metals (thus sensitive to general economic development) and precious metals, behaves exactly like what we pointed out in our previous several updates. However, one should be aware that it is very volatile: last time after it broke out, it promptly lost more than 10% before it began this leg up. As part of a commodity investment, one should use a systematic way to get exposure to silver. One way to do that is to use a moving average, such as the 130 days (or six month moving average) used in S&P commodity trend indicator strategy. In this strategy, a proper weight is assigned to each commodity chosen and each is governed by six month exponential moving average (EMA). When the price of a component is closed above its six month EMA (in a monthly update), the strategy longs this component, otherwise, it shorts this strategy. 

The following table shows the historical performance of such a portfolio:

From 10/01/2007 To 02/18/2011

From the above table, one can see such a strategy is a perfect hedge to equity invetment: it gained 23.8% in 2008. Though since then it has had anemic performance, with strong trends across all commodities, we expect it will again function as what it intends: strong performance in a trendy market and subdued performance in other cycles. We will publish a follow up article on more detailed analysis on this strategy. 

Disclosure:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

Symbols: SLV,DBP,GLD,DBB,DBA,DBC,DBE,USO,UNG,SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,

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