Seasonal silver charts say now’s the time to buy

Silver’s seasonal strength has proven a profitable trade for ten years in a row with an average return of 22.9 percent. And we’re just about to enter the ‘sweet spot’ now.

With gold and silver prices in a bull market for the past decade, you’d think investing in precious metals is easy. And it is, if you have the patience for buy-and-hold trading. Unfortunately, the often euphoric or gut-wrenching swings in prices have a way of making us second-guess ourselves.

The analysts over at EquityClock.com make it a point to take some of the emotionality out of investing by studying the seasonal trends in equity and commodities prices. And they’re arguing that now’s the time to buy silver.

After analyzing two decades of silver spot prices, they’ve identified Sept. 16-April 11 as the white metal’s period of seasonal strength with the biggest gains coming between the end of October and the end of February (per the Financial Post).

Silver’s seasonal strength has proven a profitable trade for ten years in a row with an average return of 22.9 percent. Chalk it up to increased industrial demand for the metal, which could be tied to end-of-the-fiscal-year spending at companies that produce silver-dependent products including solar panels and batteries.

A chart that dates back to 1999 at Spectrum Commodities sees to corroborate EquityClock’s finding nicely (click for a larger version):

Another analyst, Adam Hamilton of Zeal Research, has named four months as the best months to be holding silver: November, January, February and May (per Silver Investing News). On average, silver prices rise some 4 to 5 percent in each of those months.

By way of comparison, I’ve put together a simple table showing seasonal returns for silver for the past 12 months:

Month Silver’s return
Aug. 2010 +4.4%
Sept. 2010 +12.8%
Oct. 2010 +9%
Nov. 2010 +8.1%
Dec. 2010 +6.4%
Jan. 2011 -8.2%
Feb. 2011 +18.5%
Mar. 2011 +11.1%
Apr. 2011 +27.7%
May 2011 -12.7%
June 2011 -7.8%
July 2011 +17%
Aug. 2011 +5.1

Looking at the chart above, the perfect trade would have been buying in September, selling in December, then buying and holding from February through April. Of course, past performance is no guarantee of future results, but I argued recently that the silver trade’s looking more and more attractive with gold showing signs of overheating. The seasonal changes in silver prices just strengthen that argument.

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