Macro Monday 16
Silver Performance During and Immediately Post-Recession
Over the past few weeks I have heard many financial analysts recommending holding Gold and Silver for protection against a recession scenario or at least holding some bullion as a diversifier or insurance against currency risk. Today’s Silver Chart and Golds Chart from last weeks Macro Monday are aimed at identifying how good these assets performed during the last 8 recessions.
Last week we covered how gold performed during the last 8 recessions and discovered that gold provides an average return of +7.3% during recession periods whilst the S&P500 averaged a -35.6% decline. It is important to note that Gold’s price declined by -9.3% and -6.3% during 2 of the last 8 recessions, however it performed better than the S&P500 in both those scenarios during which the S&P500 declined -12.7% and -16.3% respectively. Last week’s chart of Gold demonstrated that it can offer protection during recessions whilst also potentially offering an average +7.3% return over those period.
The Chart
Interestingly Silver does not appear to be as protective as Gold during recession periods however it appears to make positive moves post-recession which is valuable to know as timing your silver allocation later in a recession cycle could be benefit your portfolio;
1. During 6 out of the last 8 recession periods Silver has declined in price by an average of -9%.
- This is a lessor performance to Golds positive average of +7.3% over the same period.
- However, Silver declines less than S&P500 which declines on average -35.6% over these same recessionary periods
2. Within a 6 months immediately post-recession Silver has increased in price 7 out of 8 times by an average of +18% (blue areas on chart)
- This provides an argument for diversifying a portion of your gold or cash position into Silver late in a recession or at the end of a recession period.
- Obviously timing this would be difficult however, if you had a Gold position that increased between +7 – 10% during what you believe to be a recession period, it could be beneficial to start allocating a portion of that position to Silver based on the average +18% potential within 6 months after the recession ends. There is no guarantee of course.
The Silver Second Allocation Approach
Based on the price history of Gold and Silver over the last 8 recessions there is an argument to not hold silver at the onset and/or during the recession itself (as silver declines -9% on avg during the recession period).
At the onset and during a recession Gold has a much better record with an average return of +7.3% however, Silver can offer significant returns in the 6 months post-recession with an average return of 18%, thus as we wade closer to the end of a recession an allocation into Silver could put you on the right side of probability. No Guarantees.
The Silver Long Hold Approach
Interestingly if you check the data chart which I will share in the comments, you will see that Silvers overall performance (recession periods including the 6 months post-recession period) is positive with an average of +9.1%. In other words, if you held Silver through the recession period and the 6 months post-recession, the average return is 9.1%. Amazing what an additional 6 months of patience can achieve. This is where there is a potential argument to hold silver from the outset of a recession if you intend to hold it that 6 months post-recession.
When you check Silvers post-recession performance (6 months post-recession), it can historically increase as high as +50.6% thus a Silver allocation does offer that upside potential that Gold does not. This adds to the Silver Long Hold Approach argument however this has to be weighed against a potential -58.3% decline during the recession period (also evident on the chart as the opposite extreme).
Final Word
The safety in Gold during a recession is attractive and the post-recession potential return in silver is hard to ignore. Silver can go down or sideways when gold first starts to increase, this has been the case historically and often gold increases for 18 – 24 months before silver really starts to move and catch up (I will follow up this point with a chart).
I myself lean towards a later recession allocation to silver, lets say we get a 14 - 20% drop in silver with a 5 - 7.3% increase in gold, this could be a window to start building your smaller silver position from your gold or cash holding but for me, the silver position will always be smaller and allocated late into a recession. I want to emphasize there is no right approach, these are just considerations worth pondering about Gold and Silver portfolio allocations during recessions. The ultimate decision is up to you.
I hope both the gold and silver chart provide you with some perspective and help keep you on the right side of probability.
PUKA
Silver Performance During and Immediately Post-Recession
Over the past few weeks I have heard many financial analysts recommending holding Gold and Silver for protection against a recession scenario or at least holding some bullion as a diversifier or insurance against currency risk. Today’s Silver Chart and Golds Chart from last weeks Macro Monday are aimed at identifying how good these assets performed during the last 8 recessions.
Last week we covered how gold performed during the last 8 recessions and discovered that gold provides an average return of +7.3% during recession periods whilst the S&P500 averaged a -35.6% decline. It is important to note that Gold’s price declined by -9.3% and -6.3% during 2 of the last 8 recessions, however it performed better than the S&P500 in both those scenarios during which the S&P500 declined -12.7% and -16.3% respectively. Last week’s chart of Gold demonstrated that it can offer protection during recessions whilst also potentially offering an average +7.3% return over those period.
The Chart
Interestingly Silver does not appear to be as protective as Gold during recession periods however it appears to make positive moves post-recession which is valuable to know as timing your silver allocation later in a recession cycle could be benefit your portfolio;
1. During 6 out of the last 8 recession periods Silver has declined in price by an average of -9%.
- This is a lessor performance to Golds positive average of +7.3% over the same period.
- However, Silver declines less than S&P500 which declines on average -35.6% over these same recessionary periods
2. Within a 6 months immediately post-recession Silver has increased in price 7 out of 8 times by an average of +18% (blue areas on chart)
- This provides an argument for diversifying a portion of your gold or cash position into Silver late in a recession or at the end of a recession period.
- Obviously timing this would be difficult however, if you had a Gold position that increased between +7 – 10% during what you believe to be a recession period, it could be beneficial to start allocating a portion of that position to Silver based on the average +18% potential within 6 months after the recession ends. There is no guarantee of course.
The Silver Second Allocation Approach
Based on the price history of Gold and Silver over the last 8 recessions there is an argument to not hold silver at the onset and/or during the recession itself (as silver declines -9% on avg during the recession period).
At the onset and during a recession Gold has a much better record with an average return of +7.3% however, Silver can offer significant returns in the 6 months post-recession with an average return of 18%, thus as we wade closer to the end of a recession an allocation into Silver could put you on the right side of probability. No Guarantees.
The Silver Long Hold Approach
Interestingly if you check the data chart which I will share in the comments, you will see that Silvers overall performance (recession periods including the 6 months post-recession period) is positive with an average of +9.1%. In other words, if you held Silver through the recession period and the 6 months post-recession, the average return is 9.1%. Amazing what an additional 6 months of patience can achieve. This is where there is a potential argument to hold silver from the outset of a recession if you intend to hold it that 6 months post-recession.
When you check Silvers post-recession performance (6 months post-recession), it can historically increase as high as +50.6% thus a Silver allocation does offer that upside potential that Gold does not. This adds to the Silver Long Hold Approach argument however this has to be weighed against a potential -58.3% decline during the recession period (also evident on the chart as the opposite extreme).
Final Word
The safety in Gold during a recession is attractive and the post-recession potential return in silver is hard to ignore. Silver can go down or sideways when gold first starts to increase, this has been the case historically and often gold increases for 18 – 24 months before silver really starts to move and catch up (I will follow up this point with a chart).
I myself lean towards a later recession allocation to silver, lets say we get a 14 - 20% drop in silver with a 5 - 7.3% increase in gold, this could be a window to start building your smaller silver position from your gold or cash holding but for me, the silver position will always be smaller and allocated late into a recession. I want to emphasize there is no right approach, these are just considerations worth pondering about Gold and Silver portfolio allocations during recessions. The ultimate decision is up to you.
I hope both the gold and silver chart provide you with some perspective and help keep you on the right side of probability.
PUKA
