A wise call from our friends in South Africa...

Regards - VHF

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Trade of 2010 - long silver, short Treasuries

Prieur du Plessis

December 9, 2010

I noted the following on January 10 in a Words from the Wise review: “Will we perhaps look back at these assets [referring to bonds and silver] a year from now and see one of the worst and one of the top performers respectively for 2010? A long silver, short Treasuries trade makes perfect sense to me.”

I have on a number of occasions since highlighted bearish articles on Treasuries and bullish articles on gold. Although I have not recently written anything specifically about silver, I regard silver as gold’s high-beta cousin, with a very favorable set of demand/supply statistics to boot.

How has this “Trade of the Year” performed since the beginning of 2010? Let’s turn to the scoreboard: The year-to-date returns show silver (+68.1%) clobbering 10-year Treasury Notes (+5.6%), although the Treasury short position on its own is under water. The relative strength of silver versus the price of Treasuries is shown in the bottom portion of the chart below. A rising trend line indicates silver outperforming Treasuries, whereas a declining line shows the opposite. After a ranging ratio for a few months, silver has turned the tables from late August onwards.

Source: StockCharts.com

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