Credit Suisse: Near-term Weakness in Silver is a Buying Opportunity

A recent Credit Suisse strategy note highlights the decline in precious metals saying “the recent dip is a buying opportunity”.  Specifically, they like silver in the near-term though they’re more bearish in the long-term:

“Silver sold off recently after the market failed to break key technical resistances around USD 35. Technical momentum and trend ratings are currently neutral. Due to its overvaluation, silver is more vulnerable to the downside than gold. For this reason, our longer-term view on the market is more cautious. Near term, however, silver could rebound from oversold levels. Given that silver is a more sentiment-driven market than gold, we would expect silver to actually outperform gold in the short term. At the same time, silver implied volatility continues to move lower, making buying options attractive. Given all of the aforementioned, we think buying at-the-money call options on silver looks attractive. We suggest a duration of three months, as implied volatility for this duration is particularly low in historical terms.”

Source: Credit Suisse


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. I don’t get how silver can be more sentiment-driven than gold (I understand that it might be, I just don’t get why). Silver has industrial uses, gold basically does not.

  2. SLV is the most popular silver ETF, while AGQ is a 2x leveraged ETF that seeks to provide daily returns double that of the daily change in silver.

    Alternatively, you can look at silver miners or silver trading companies. Silver Wheaton (SLW) is a popular one.

    Do your DD; there are pitfalls for investments like these. SLV,for instance, is not taxed at the capital gains rate, but at the federal rate for “collectables” (28%, vs 15% for capital gains).

    And leveraged ETFs tend to trend downward over the long run, because of the leverage (imagine that SLV goes up 25% one day, and down 20% the next. It’s back where it started. Now the leveraged fund, AGQ, would have gone up 50% and down 40%.. and is *not* back where it started, but is down 10%).

    You might look around SeekingAlpha for more ideas, but beware of the giddy ultra-bull sentiment or conspiracy theories there. It’s not healthy for your stock account.

  3. Cullen,

    On not strictly related topic: There is an IMF proposal circulating regarding decreasing US govmnt debt by cancelling the portion the Fed holds. What is MR view on such a proposal?

  4. that is exactly what will be done……..X’ing out fed US debt sheet…….in 2015.

    it will be a partial defacto default….33% i reckon by then…….but japan will have woken up the bond vigilantes before then.