Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Silver's Tactical Performance

Commodities / Gold and Silver 2011 Jan 12, 2011 - 12:30 PM GMT

By: Dr_Jeff_Lewis

Commodities

“Tactical performance” is a word we'll all have to grow accustomed to reading, as more and more weight of the markets is placed in the hands of investment managers or quick acting computer models. 

The best example of tactical performance was the first week of trading for the gold and silver markets, when there were numerous “tactical” changes to investment portfolios, as we just witnessed.  Such reallocation (taking profits from winners, adding to undervalued losers) is big business, and fund managers like to make such portfolio revisions at a time most convenient: late December and early January.


Tax Time

One big reason for this timing is the importance of tax time.  The process of selling winners and harvesting temporary losses is conducted with great precision, as sheltering profits and taking maximum advantage of losers result in a small tax bill.  Precious metals investors, especially physical investors, know this all too well, as taxes are disgustingly high for those who want real assets that can be held in the hand.

It shouldn't be much of a surprise that silver was, for many people, an asset in which they had accumulated very large gains.  Besides palladium, it was the best performing commodity of 2010, but unlike palladium, silver attracted wider investment interest and many more investors as a whole.  

Of course, some of these investors were speculators, hedge funds, or portfolio managers, who understandably, cannot over expose themselves or their clients to an extreme allocation of one asset.  Thanks to SEC regulations, funds must maintain the utmost diversification or suffer penalties.

To meet these guidelines imposed by either themselves or regulatory agencies, silver markets endured a necessary sell off.  This sell off creates what is known as “tactical performance” and is the price performance of a certain asset that happens as a result of tactical shifts in investment. 

Do you think silver lost nearly two dollars in a week because people thought it was worth two dollars less?  No, of course not.  The drop happened because many were forced to, by law or by taxation, to sell their silver holdings.

Splits in the Market

There are, now more than ever, many different splits in the commodities market.  Taking each market at face value, and accepting that their assets are as defined, we would have to accept that there is a futures market, a spot market, an exchange-traded fund market (with many exchange-traded funds), and a physical metals market. 

These markets, unlike the markets for stocks, do not allow for the flow of information to affect price equally.  Let's assume I have one share of stock in, say, Wal-Mart.  I cannot, as I could with silver, buy or sell that Walmart share in a futures market (options are different, they are the option to buy, not a commitment to buy), an exchange-traded fund, nor a physical market.

Such a lack of market crevices means I am quoted only one price, from one market, just as anyone else is.  Demand for Wal-Mart stock always flows through the stock exchange, and so too does supply. 

Silver, however, flows through any number of different markets, which may or may not have an immediate effect on the greater markets.  If I were to sell 5000oz of silver to a silver dealer, that sale would not be recorded at the official futures market unless the dealer then made a sale on the futures market, as well.

Information from the futures, spot, and exchange-traded funds seem to trickle down, but information from the physical market (where silver is actually traded for dollars) never trickles up, or at least not quickly.  Therefore, when prices decline so suddenly in January as a result of “tactical performance” or “tactical reallocation,” just know that it was the temporary supply and demand changes on the central market that moved the markets. 

Imagine if that silver sold in reallocation were absorbed in the physical markets at the various silver dealers.  It would be likely that the resulting wakes of the sales would not reach market until everyone had already forgotten about the tactical reallocation, and based on the generally rising premiums, it appears that many would have been happy to take the silver off the dealers’ hands.

In the places where silver is still being traded for dollars—the local coin shop—there are still plenty of buyers, and there aren't many who are assessing their own “tactical allocations.” 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules