Aniket PujariSilver is staging a spectacular recovery, leaving behind gold, stocks, Treasuries, and Bitcoin. But before chasing the rally, investors should take note of its past.
Silver futures were on course to close with a gain of 15% shortly after noon on Tuesday, while gold contracts were up 6.5%. Most stocks, especially those of technology companies, were lower. Bitcoin fell 2.3% and Treasury prices were in the red as well.
Silver’s standout performance comes after two hard days for the metal. It fell 1.9% on Monday after falling 31% on Friday, its second-largest single-day decline on record, according to the Dow Jones Market Data team.
Friday’s plunge in silver was also notable because it shattered a streak of 853 days without a 20% correction. That is just three days short of the record 856-day streak ended in January 1980, according to Ned Davis Research.
Friday’s decline came after silver hit a record price at the start of last week. It matters because Matt Bauer, a commodity strategist at Ned Davis Research, has identified four prior instances where silver has broken such a streak with a 20% correction following an all-time high.
“If the current episode echoes those past peaks, silver faces an uphill battle, both literally and figuratively, to reclaim its all-time high,” Bauer wrote.
The first drawdown around 1968 lasted 3.6 years, while the second, around 1975, lasted nearly two years. The other two, which began around 1980 and 2011, were about 13 years and nine years long, respectively. That averages out to almost seven years for silver to find a bottom, or reach its absolute low point.
In those periods, the average peak-to-trough decline was almost 65%, and silver took just under 14 years to move back to a record level, Bauer wrote.
Caveats exist for almost any analysis. In this case, investors should know that the numbers are heavily skewed by the 93% drop that followed the 1980 peak. And it also bears repeating that past performance isn’t indicative of future results.
While the sample size of four instances is small, “we do believe the takeaways are noteworthy,” Bauer wrote.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
