Silver's DOWNSIDE, by-the-numbers (2008-2012)

It's annoying to read stuff like "Silver's crashing!" on a modestly down-day. So I thought I'd post some Ag data from the last 5 Years (2008-2012) as context, general information and helpful insight for Price-of-Silver (POS) peeps.

Of 1,262 trading sessions, I counted 585 Down Days (that's 46.35% of the time.) With a threshold of < -0.15% and > $0.03 loss, the average down-day was -$0.48 and -2.02% avg LOSS.
The median down-day was -$0.30 and -1.51% avg LOSS. Conclusion? There are alot more down-days for POS than folks imagine, and ~-1.5% loss isn't uncommon or serious worry. On the contrary, losing days are totally normal.

Of 1,262 trading sessions, the Worst 5% (Biggest Down Days) are hypothetically 1:20 sessions; imagine about once-a-month, but in reality 'very bad' days cluster together. How bad is that loss?
In the Worst 5%, the avg 'very bad' down-day was -$2.63 and -7.66% avg LOSS. The median 'very bad' down-day was -$2.35 and -7.34% avg LOSS.
Conclusion? Don't freak out when POS drops - $0.75 -$1.50 or when Ag falls ~-2% to -4% in a single day; that's fairly typical at this POS level.

So what are the absolute WORST days, really big 1-day drops in the last 5 years? Basically, when POS drops -7.5% and/or loses > -$2.50. There have been only 6 days in the last 5 years with double-digit losses; from current POS, we'd be looking for a Dollar-loss of more than -$ 3.25 for a 'very bad' day. Folks, we have NOT seen anything like that since 1 March 2012, over a year ago. To date, the worst day of the last year was over two months ago, 4 January 2013, -5.14%. No big whup! The slow and steady (incremental) retracement notwithstanding, there's no basis for any alarmist "Silver's Crashing!" posts until we see some REAL volatility reappear. We're waiting on that, still...

I have previously suggested waiting to BUY (more) Ag until April-July, because I do believe that we will/must see more big down days before the interim bottom is in. I do expect we'll see 3 or 4 such "big" down days (look for -5%, -6%, -7% daily declines) eventually, before $22.-25./ozt is close at hand. I think THAT will be a great entry-point (for someone newly allocating to Ag) or an add-on BUY target for prudent allocators.

This is just my opinion, staring at the Ag #s. You buy Silver, you EXPECT to see the POS fall and rise alot. Don't worry about it. :smile

 

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JB, just an FYI. Discussing allocation models and speculation in precious metals, THEN making recommendations on purchases would be illegal in the US unless properly licensed. It doesn't mean a lot (since I doubt anyone would sue you), but you might want to include a disclaimer on similar posts to this.

 

NorthKorea-
I'm not selling anything here. And no, discussing asset allocation (even, models) in the most generic way is not verboten as you imagine. hth

 

After reading that entire essay, I concluded that your position is that silver is a very volatile commodity. Is that correct?

 

The point at which you name an entry point and direct an actionable position change, you've given advice. It doesn't matter if you profit from said advice. The law is very clear. Just put in the disclaimer in the future.

 

Tyler-
Not necessarily. What do you mean?
1) I have no idea IF Ag is more (or less) volatile than other unnamed commodities; I didn't make any comparisons either.
2) I've only outlined the downside of Ag for the past 5 years.

NorthKorea-
You're woefully mistaken, in this context. Your inference here is off-base. IF what you described were correct, there'd be almost nothing posted on most financial websites. I've expressed an OPINION, not "given advice" to any one.

 

Well thought out, informative post. One of the better ones I have seen on CT for a while.

For those who are more bullish on silver, reverse the argument and its true too. Most price action comes quickly and mostly unexpectedly in most investments.

 

Iam an old head that puts more on something eatable than silver or gold.
I always plant a big garden and buy food on sale by the case.
It will happen one day that those who spent all they had in the market for gold and silver will also need to eat.
Look at it this way if you and i were the only two people in the world and you lucked up with all the silver and gold and me the food it wouldnt be long before id own the bigger part of your wealth.
Everyone has to eat sometimes.

 

The economy is strengthening, spending is coming under control, and energy prices are projected to fall. As other investments begin competing with PMs, PM prices have no where to go but sideways or down.

...just say'n.

Can another "911" happen? Could we go to war with Iran? ...sure, anything's possible. All those things could push PMs through the roof, but no sane person "hopes" they'll happen...and that's not an intelligent way to invest.

If market conditions suggest the best probability of returns is in PMs...overweight PMs. No one is saying you shouldn't. But if there are better investments available, underweight PMs and move into what makes sense.

 

NK,

I could not disagree more with your observation... I see JB's OP simply as an observation that progressed to a simple tally. To me no different than talking about the number of days that it has rained since last summer, etc.

I am very new to bullion and PM (especially silver). I thoroughly enjoy looking for and buying both ASE's and junk silver (especially Peace Dollars). I have even developed some local sources for silver so that I do not have to depend on eBay (got ASE's last week for $31).

I will be the first to admit that I have much to learn about PM's and see how one could easily be sucked into buying too much or buying at the very wrong time. Yes, at present I do have silver fever, so I am trying to balance that desire with knowledge. I appreciate the efforts that the OP took first to do all of the tallying, and then presenting it in a format that could teach me something.

I did not take it as he was trying to get me to purchase anything specifically...


bill

 

I like the idea of silver going to $22-$25, but I think it will languish around where it's at for a while longer. I would love to buy silver dollars for $22 again, but I don't see it happening. First of all there's a shortage of physical silver, and the prices I see in the shops aren't going down any, and it seems like there is a kind of a floor of around $27 which we haven't gone below for a while.

I am still looking around for silver to buy. Call me crazy, but if I find a few Peace dollars tomorrow, I'm biting at $30 a piece.

 

This thread just makes me want to buy more silver. TC

 

You could be right, $30 for a silver dollar could be seen as crazy cheap in a couple of years. OTOH, I knew a collector buying in the early 80's "all he could afford" silver dollars for $20 each. His reasoning was that just a couple of years before they were going for $40, so $20 was just dirt cheap, right? IDK if he ever sold, but he would have had to hold those silver dollars for over 20 years just to break even nominally, let alone break even accounting for inflation.

Never get stuck a number in your head "just because it was that price X months/years ago". Numbers are manmade, there is nothing mystical about them.

Like I said, maybe silver dollars will be going for $100 each in a couple of years, I simply do not know. Just warning you that any commodity can go MUCH lower than today's price, there is nothing magical about any pricing. Remember just 10 years ago these junk silver dollars were $6 each in junk bins all across this country.

This "shortage" is artificial, and happens at every dip. Trust me, there is no shortage of old junk silver dollars in this country, just dealers not wishing to sell at what they percieve as temporary market lows.

 

It took me a long time to get used to $30 for a silver dollar. I was buying them at around $6 a piece 10 years ago. I may be too stuck on the silver thing, since I've been buying for over 12 years now. I think it's something that will go up eventually, but I could be wrong. I know that people bought a lot in the 1980's and had to sit on them for over 30 years to sell them for what they paid for them. I don't think I'll be around in 30 years, so I have been buying "mildly numismatic" coins lately for around melt. I like all sorts of coins and buying "junk silver" over the years has left me with a craving for more interesting coins. I try not to get pulled into buying really expensive coins, but i did buy a "dos mundos" for over $150 once just because I became fascinated by them.

 

But that is the danger sir. I am just saying we get too "used" to a certain price point, that number sticks in our head, and anything cheaper is seen by us as a bargain. Its human nature. However, it is simply human psychology.

I was basically pointing this out to many who have only bought silver dollars at a high price. They may not realize a $30 silver dollar was not written in stone by (insert your appropriate diety).

I like the way you are buying though. I have always said if you wish to invest in PM, buy something you ALSO like collecting. You might as well "profit" from the enjoyment of collecting WHILE you are also investing in PM. Its a win win, and a smart move. Anyone buying coins because they enjoy them I never have a bad word to say about price, (lord knows I blow enough money on coins). Its only those who ONLY want to invest in PM I ever have a disagreement with at times.

 

I just traded fine to extra fine Morgans to my dealer for $29 each in store credit and bought ASEs and generic rounds. IMO in these grades they are like junk silver. I am trying to get the most amount of silver bullion per dollar. I do hold graded MS Morgans though.

 

OK...sell all the silver you own now, wait a year or two, then BUY, BUY, BUY...@$12/Oz. :thumb:

 

I wish gold would have continued the trend it was going in a couple weeks ago like silver still has. I just started buying and I have gold fever! Controlled gold fever, but still gold fever none the less.

 

So gold isn't going down lately. Huh. I wonder what that means?

I just bought 10 shares of GLD, and they have gone up, so I'm okay with that.

 

This is a useful line of inquiry. (Not addressed by my OP; but still a very GOOD QUESTION.)

To answer this precisely, look at (compare) five years of Spot Prices for other commodities: http://online.wsj.com/mdc/public/page/2_3023-cashprices.html

In my opinion, it's enough for retail investors to compare the 5-year standard deviation stat (or semi-standard deviation; aka semivariance) for commodity ETPs.


CAVEATS: Bear in mind, that's price volatility for investor interest in the financial instrument, NOT 'Spot Price.' Also: WATCH THE PERIOD DATES, sometimes it's last month or last quarter. And there are other stats to compare (apples-to-apples) but always use the same site(s) and don't assume that different sources will arithmetically calc "stddev" the same way! Obv, use same-same USD or GBP funds too.

Perusing this list, I say that YES, the SLV fund (ETF) seems to be on the riskier end of the volatility spectrum, and Silver is probably more volatile than most other commodities (in this period) YES.

[TABLE="width: 414"]

[TD="class: xl69, width: 303, bgcolor: transparent"]FUND & Ticker
[/TD]
[TD="class: xl68, width: 110, bgcolor: transparent"]3Yr Std Dev (MStar)
[/TD]
[TD="class: xl68, width: 139, bgcolor: transparent"]200 Day Volatility (ETFdb)
[/TD]

[TD="class: xl65, bgcolor: transparent"]UBS E-TRACS CMCI Livestock TR ETN (UBC)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]12.17
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]18.32%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Livestock TR Sub-Idx ETN (COW)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]13.97
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]8.04%
[/TD]

[TD="class: xl65, bgcolor: transparent"]SPDR Gold Shares (GLD)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]18.55
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]11.34%
[/TD]

[TD="class: xl65, bgcolor: transparent"]United States Diesel-Heating Oil (UHN)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]22.6
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]17.33%
[/TD]

[TD="class: xl65, bgcolor: transparent"]UBS E-TRACS CMCI Agriculture TR ETN (UAG)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]24.04
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]11.73%
[/TD]

[TD="class: xl65, bgcolor: transparent"]ETFS Physical Platinum Shares (PPLT)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]24.53
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]16.68%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Copper TR Sub-Idx ETN (JJC)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]27.5
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]14.78%
[/TD]

[TD="class: xl65, bgcolor: transparent"]ETFS Physical Palladium Shares (PALL)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]29.43
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]23.58%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Cocoa TR Sub-Idx ETN (NIB)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]29.87
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]20.84%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Grains TR Sub-Idx ETN (JJG)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]30.63
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]15.29%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Coffee TR Sub-Idx ETN (JO)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]32.46
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]27.73%
[/TD]

[TD="class: xl65, bgcolor: transparent"]United States Natural Gas (UNG)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]34.37
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]32.97%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Nickel TR Sub-Idx ETN (JJN)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]34.86
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]24.32%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Cotton TR Sub-Idx ETN (BAL)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]35.68
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]17.99%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iPath DJ-UBS Sugar TR Sub-Idx ETN (SGG)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]41.19
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]21.58%
[/TD]

[TD="class: xl65, bgcolor: transparent"]iShares Silver Trust (SLV)
[/TD]
[TD="class: xl66, bgcolor: transparent, align: right"]42.87
[/TD]
[TD="class: xl67, bgcolor: transparent, align: right"]20.75%
[/TD]
[/TABLE]