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We are watching the silver market closely at the moment. The reason for this is what silver managed to do during the Great Financial Crisis.

At that time silver went on an epic rampage. On October 31 2008 it was trading at around nine bucks. If you’d held silver through to August 2010, you would have been able to sell it at $17/oz. But then it soared all the way to a peak of $48 on 28 April 2011, a spectacular four fold increase if you’d been in silver early enough.

Looking back on it, the early momentum in the price looks to have been part and parcel of the demand for precious metals as the GFC took hold and major banking institutions tottered.

Gold bugs over the same time frame of 2008-2011 would not have enjoyed quite the same level of returns, as gold only grew from around $750/oz to almost $1900/oz. I say ‘only’: it was still a profitable trade when stocks were heading in the opposite direction. Indeed, those days it seems like most markets were heading south, but not gold and silver.

While you would have more than doubled your money in gold during the GFC, you would have quadrupled it in silver.

But now take a look at where gold is today: gold did sell off during 2012-13, but it never broke south of $1000/oz and is currently trading just north of $1570. This is just over $300 south of its 15 year high. Silver has fallen further, and at one stage in 2015 could have been had for less than $15/oz.

Where is the silver bull market?

Silver has had a couple of half hearted bull markets since 2015 but nothing that consistently broke $20/oz. Right now it has been flirting with $19/oz. Our premise is that anything above $16 moves silver into what we would call interesting territory. Above $18/oz and it is worth taking a more serious look at it.

Silver is a precious metal and a reserve of value like gold, but from a trading perspective, silver also has more upside scope than gold, as we saw in 2010. But to see that upside there needs to be some real fear in global financial markets. We saw some of that when Iranian general Qassem Soleimani was assassinated earlier this month and there was a real prospect of an escalating conflict in the Middle East. Silver had, however, already put on some value before that action, going from $16.5 before Christmas to $17.92 at the time of the killing of Soleimani.

The fear in the Middle East took silver higher to $18.61.

Silver futures notably broke above $19.50 in September, and it looks like $20 is a key resistance level at the moment. But what could make silver more interesting in the increased levels of tension we are seeing in financial markets as more news emerges from China regarding the coronavirus in Wuhan.

Will the coronavirus be the next systemic shock?

The virus could end up being seriously bad news for China, and for the wider world, if it is allowed to get out of the box, so to speak. Already economists are wringing their hands as they consider the overall impact on the Chinese economy. More hysterical headlines are emerging every day and this will start causing investors to look more seriously at safe haven assets. Silver is one of those safe haven assets.

There are two ways to approach the silver market: one is to use a leveraged trade with a financial spread bet or CFD (contract for difference) with a reputable futures broker. This will provide potentially enormous upside if a strong silver trend gets established. However these are risky instruments and we generally find expensive to own if you hold the trade open overnight.

The safer – and cheaper – option is to buy an exchange traded fund. Silver-based ETFs are available on the London Stock Exchange to trade like shares, including Invesco Physical Silver (LSE: SLVP) and WisdomTree Physical Silver (LSE: PHSP).

It is also possible to buy leveraged ETFs – unlike a CFD, which provides you with 30x leverage at a minimum (more if you are an experienced trader) – leveraged ETFs can be bought at 2x or 3x price performance. Bear in mind this applies to downside as well as upside performance. WisdomTree has a 2x leveraged silver ETF listed in London (LSE: LSIL).

If you are happy trading on US markets, VelocityShares offers both 3x leveraged silver as an exchange traded note as well as an inverse version which you can buy when the market is heading back down again.

Don’t forget to sign up for The Armchair Trader’s daily newsletter for more trading and investment insights including on commodity markets.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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