Silver Top Commodity in Q3

Silver has a reputation for volatility due to its history of violent price swings. That is unattractive for those without the stomach to tolerate sudden, sharp declines. But it is often forgotten that the pendulum swings in both directions. When silver makes moves to the upside it has the ability to outperform its peers, which can prove rewarding for silver investors. One need look no further than 2012′s third quarter (Q3) for a prime example. Silver exited the period bearing the crown of best performing commodity.

Central bank policies in Q3 gave the metals markets a boost, but the rewards were not distributed equally. Since gold undoubtedly has more clout than its peers, it receives the most attention — and silver is commonly said to take direction from its more popular yellow sibling. That makes it all the more impressive that the white metal outran gold during Q3.

Since the inception of the now-popular quantitative easing (QE) schemes in the US, silver has shown a tendency to react more positively than gold. In the 15 months following the first round of quantitative easing, silver rose about 53 percent, which, according to Bloomberg, is twice the rise that gold saw. During QE2, the metal gained 24 percent, or three times as much as gold.

With an anticipatory rally that started in the month ahead of the recent announcement for QE3 and continued after the aggressive policy was unveiled, silver has continued the trend of outperforming its peers.

Silver followed gold’s lead, but true to form, it outperformed gold on a percentage basis, said Scotiabank.

Silver climbed 35 percent above its June low, just above the $26/oz level, Scotiabank said in its October metals report. Platinum and palladium rose an average of 26 percent compared with gold’s 13 percent rise.

Though the momentum in the metals markets has declined following QE3-induced rallies, silver is still posting stronger short-term gains than gold. Looking at the markets on a 30-day basis, on Friday silver was up about 6.6 percent compared to gold’s 4.9 percent.

Both markets are now struggling to break above resistance levels that are proving to be extremely resilient. For gold, the problem is encountered at the $1,800 level and for silver it is the $35 level.

Some market participants have expressed concern about the extent of silver’s recent rally, and have suggested that the market could be overbought. But there is still a significant amount of optimism about the metal, and many are betting on further gains.

The US is not the only nation to have announced policies that are largely interpreted as bullish for metals. The European Central Bank unveiled Outright Monetary Transactions (OMTs), a bond-buying program designed to help ailing Eurozone nations such as Spain. Japan, China and even Australia have also taken action to influence economic conditions.

Given the widespread risks — such as inflation and currency debasement — that are perceived to surround most major currencies, and the risks in the economies with which they are associated, investors are expected to continue looking favorably to the metals markets.

Going into October, hedge funds were reportedly the most bullish on silver in seven months. Net speculative silver on the COMEX was continually increasing, having reached a 12-month high, and steady additions to silver ETFs were continuing.

“We expect silver to follow gold’s lead and as we remain bullish for the latter, we are bullish for the former,” Scotiabank said.