Commodity ETF Trends: Silver Breaks Out, Gold Steady Amid Commodity Strength (SLV, DBA, DBP, DBC, DBB, DBE, GLD, USO, UNG)

Amid steady up trend of U.S. stock markets, silver (NYSE:SLV) finally broke out last week, ending the week with 8.8% gain. SLV is now above the previous high $30.18 per share, achieved on 12/31/2010. It closed on Friday at $31.79, a historical high. 

Gold (NYSE:GLD) was also steady, closing the week with 2.3% gain, though its Friday’s closing price $135.47 is still below its recent high of $139.11. For more commodity performance details, please refer to  here.

The following trend table shows the trend scores of commodity ETFs. Silver (NYSE:SLV) is retaining its first place, way ahead of the second place agriculture ETF (NYSE:DBA). It should be noted that DBA still has quite some way to go to break out from its previous high $42.03, achieved on 6/30/2008, right before the financial crisis.

Assets Class Symbols 02/18
Silver (SLV) 45.2% 35.79% ^
Agriculture (DBA) 18.71% 19.98% v
Precious Metals (DBP) 14.73% 11.42% ^
Commodity (DBC) 13.62% 13.58% ^
Base Metals (DBB) 13.41% 11.63% ^
Energy (DBE) 10.83% 10.06% ^
Gold (GLD) 8.93% 6.85% ^
US Oil (USO) 0.88% -1.2% ^
Natural Gas (UNG) -20.35% -19.85% v

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

Silver, as proxies to both industrial metals (thus sensitive to general economic development) and precious metals, behaves exactly like what we pointed out in our previous several updates. However, one should be aware that it is very volatile: last time after it broke out, it promptly lost more than 10% before it began this leg up. As part of a commodity investment, one should use a systematic way to get exposure to silver. One way to do that is to use a moving average, such as the 130 days (or six month moving average) used in S&P commodity trend indicator strategy. In this strategy, a proper weight is assigned to each commodity chosen and each is governed by six month exponential moving average (EMA). When the price of a component is closed above its six month EMA (in a monthly update), the strategy longs this component, otherwise, it shorts this strategy. 

The following table shows the historical performance of such a portfolio:

From 10/01/2007 To 02/18/2011

  2007 2008 2009 2010 2011 1 Yr 3 Yr   Incept
Annualized  15.94 23.77 2.28 3.19 3.96 16.57 7.69 14.31
Sharpe Ratio (%) 91.83 107.57 14.05 23.72 30.67 129.08 44.4 82.19
Alpha(%) 0.05 0.09 0.01 -0 0 0.03 0.03 0.06
Beta 0.78 -0.077 0.059 0.333 0.928 0.421 0.021 0.072
RSquare 0.895 0.016 0.011 0.249 0.914 0.36 0.001 0.013
Standard Deviation 0.167 0.212 0.156 0.13 0.129 0.128 0.167 0.168
Treynor Ratio 0.197 -2.969 0.369 0.093 0.043 0.392 3.462 1.928
Draw Down 0.038 0.149 0.102 0.168 0.023 0.108 0.193 0.193
Sortino Ratio 1.493 1.517 0.202 0.342 0.456 1.941 0.627 1.184

From the above table, one can see such a strategy is a perfect hedge to equity invetment: it gained 23.8% in 2008. Though since then it has had anemic performance, with strong trends across all commodities, we expect it will again function as what it intends: strong performance in a trendy market and subdued performance in other cycles. We will publish a follow up article on more detailed analysis on this strategy. 

Symbols:  iShares Silver Trust (NYSE:SLV), PowerShares DB Agriculture (NYSE:DBA), PowerShares DB Precious Metals (NYSE:DBP), PowerShares DB Commodity Index Tracking (NYSE:DBC), PowerShares DB Base Metals (NYSE:DBB), PowerShares DB Energy (NYSE:DBE), SPDR Gold Shares (NYSE:GLD), United States Oil (NYSE:USO), United States Natural Gas (NYSE:UNG).

Written By The Staff Of  Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

LTI Systems, Inc. is the operator of and The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.  

MyPlanIQ’s blog provides periodical articles to discuss issues related to retirement plans (401(k), 403(b) and IRAs), deferred compensation plans (457), college savings plans (529), taxable brokerage investment accounts, variable annuities and universal life insurance plans. It also covers investment strategies, specifically strategic and tactical asset allocation and investment products such as ETFs and mutual funds. In addition, it syndicates daily articles that are related to retirement planning, personal finance, investment strategies, annuities, insurance, college savings and market/economic outlooks. It provides a comment and discussion community for readers.

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