Silver Dec and Year Close

Performance

Silver ($/ounce) Yr : 14.77 +18% p.a. (12.52)
Silver Fund (Dec) : +31%
FTSE 100 Year End : 6457 +3.8% p.a. (6220)
FTSE 100 Fund (Dec) : +92%
Gold ($/ounce) : 838 +31% p.a. (639)

Silver this year has significantly underperformed gold and we would expect this year to see the situation reversed. Of course that could just as well mean less of a fall as opposed to a greater rise !

The bounce off $13.6 in Dec should signal the start of a strong rally that lasts well into the first part of next year. The ideal strategy for this is buy and hold, until we see a major trend change. A 'core' position up can therefore be held with small relative trades at either overbought or oversold conditions.

There is, however, an issue with the first few months of the new year when we expect a sell-off in the equity markets. With a much greater involvement of the hedge funds across all asset classes, any sharp equity sell-off may cause a 'sell everything and anything' reaction, temporarily depressing the precious metals. Whether this morphs into something more serious will only be apparent at that time.

We would advocate a long core holding, but would be wary of a pullback to below the $14 level once more. This level could be used to increase the core holding, but with a tight stop in case the economic situation turns ugly.