Precious Metals: Time To Move On

0
Precious Metals: Time To Move On

Precious Metals

The final, six-month performance of our top ten names from August 6th, with three precious metals ETFs circled (Screen capture via Portfolio Armor).

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2020 hedge fund letters, conferences and more

ADW Capital’s 2020 letter: Long CDON, the future Amazon of the Nordics

Investing Greenhaven Road CapitalADW Capital Partners was up 119.2% for 2020, compared to a 13.77% gain for the S&P 500, an 11.17% increase for the Russell 2000, and an 8.62% return for the Russell 2000 Value Index. The fund reports an annualized return of 24.63% since its inception in 2005. Q4 2020 hedge fund letters, conferences and more Read More


Moving On From Precious Metals

In a post last week (Silver Isn't The Next GameStop), we wrote that we were still bullish on the silver ETF SLV. We're not bullish on it anymore. We're no longer bullish on precious metals in general. Maybe you shouldn't be either. Here we explain why. First, let's consider why you might be bullish on them in the first place.

Do You Want To Make Money Or Be Right?

Bloomberg's Joe Wiesenthal touched a nerve with this tweet last week, showing that gold prices had dropped since the Georgia Senate runoffs.

The reason that tweet touched a nerve is because many investors own precious metals for ideological reasons. They're into Austrian economics, they believe profligate government spending will lead to hyperinflation, etc. Maybe they'll even be right someday. But why not make some money in the meantime?

What Makes A Good Forecaster

Several years ago, we interviewed a leading Super Forecaster from Phil Tetlock's Good Judgment Project. We were reminded of that over the weekend by this tweet.

When's the last time you updated your beliefs on precious metals?

Our system doesn't have beliefs, but it does update its analysis every trading day.

Updating Our Take On Precious Metals

Every trading day, our system updates its ranking of every underlying security with options traded on it in the U.S., based on its analysis of total returns and options market sentiment. We broke this down for the iShares Sliver Trust ETF (SLV) in December (Why-Yo Silver), focusing on the options sentiment part:

Here's a screen capture from our admin panel as of July 23rd, summarizing key steps in the analysis that selected our top ten names. Below we'll explain the 8th row containing SLV while referring to the columns labeled with red letters.

Precious Metals

A) The "Exp Return" column was the mean of the average 6-month return for SLV over the last ten years and its most recent 6-month return as of July 23rd. For SLV, this was 13.73%.

Columns B-through-F relate to various gauges of options market sentiment we use - you can read the post linked above for more detail on those. But for before we apply any of them, we need to have a positive number in column A.

Screening For Total Returns

We need the mean of the most recent 6-month return for a security and its average 6-month return over the long term (long term = 10 years, if available) to be positive. The higher a securities average 6-month return has been over the long term, the more forgiving this screen is over the short term, and vice-versa.

In the case of SLV, the average 6-month return over the last 10 years has been negative, so the screen's not very forgiving.

Securities

This and subsequent screen captures are via Portfolio Armor. 

The other precious metals ETFs that appeared among our top ten names six months ago, the VanEck Vectors Gold Miners (GDX) and the ProShares Ultra Gold (UGL) fail this screen too now.

GDX:

Precious Metals

UGL:

Precious Metals

Cutting Losers Loose

This screen doesn't weed out all losers, of course. After all, it didn't weed out the losers among our August 6th top names.

Precious Metals

Our ten top names from August 6th. 

But it does keep you from picking names in a downtrend. And, in doing that, it frees up space to find new winners, as our system did with Nano Dimension (NNDM) a couple of months ago.

Top Ten

Performance so far of our top names from December 11th.

What If You're Right About Precious Metals?

What if you're right that there's going to be a short squeeze or something else driving up silver prices, or that we'll suddenly get a bout of inflation driving up gold prices? Then you'll be in earlier on the next upswing than us. But in the meantime, we'll be screening for names already on the upswing with potential for more gains.

No posts to display