Crash of Silver. Greece Shakes Again!

The Singapore election has came and went with political observers hailing this as a watershed election with the Workers’ Party gaining a GRC. The stock market barely reacted to the news although STI did tumble before the election as investors are worried about possible huge losses by the PAP, when PM Lee made a public apology on various mistakes the government has committed. The only time when the government apologizes is when they are about to do badly in an election. Seems like the market has already factored the loss of a GRC even before election day.

 

There are much greater concerns abroad for the month of May. Here are the significant events:

-          Silver prices plunged by more than 30% in early May dropping from a high of $47 to $33 over a period of 2 weeks. The negative sentiments dragged down the prices of other commodities prices with gold dropping $10 and oil prices dropping back below $100. Commodities producing stocks and countries are hit hard during this period. However, prices have recovered since than

-          Greece is in trouble again as investors fear a debt default, despite a combined bailout by EU last year. The news sent Euro falling again and gold prices are boosted thanks to the lack of confidence of paper assets.

-          News of US economy slowing down sent jitters into the market. Coupled with the Greece crisis, investors are sitting on the sidelines watching for future developments

-          The SGD appreciated the most in Asia for the past few months.  Investments out of Asia are hit by currency losses, slowdown in the US economy and the Greece/Euro crisis.

May is traditionally the slowest month in an investment year. It is always marked by crisis, steep corrections and tepid market movement. This year is no exception. The highlight though is the Silver market.

Understanding Silver

Participants during my talks have always asked me about the potential of Silver investment ever since the fever started last year. My advice to them: Stick to Gold if you are not sure what you are playing with. In April, I saw the picture of Silver on the front page of our mainstream newspaper screaming “BUY BUY BUY ” and I knew at that time a big correction in Silver prices is about to occur.

Silver Prices big run-up from Feb and the crash in May 2011

Gold did relatively much better as a preserver of value and the price is back to $150, near to its previous high

Traditionally, Silver plays a second fiddle as a means of currency to Gold. Compared to gold, prices of Silver is a lot more volatile due to the smaller market and interested investors. The London silver bullion market turns over 18 times less money than gold. With physical demand estimated at only $15.2 billion per year, it is possible for a large trader or investor to influence the silver price either positively or negatively. My recommendations to potential investors in silver, treat it as an option or warrant to Gold. For every 1% gain by gold, Silver will gain 3%. Of course, the losses are amplified as well. The funds I recommended have allocation mainly in Gold and Oil with minimal exposure to Silver. I have recommended a reduction in weightage on commodities during Feb this year as I expected a major correction to take place sometime down the road after such a big run-up and the recent correction has proven my judgement to be correct.  http://xeooex.blogspot.com/2011/02/unexplainable-selloff-of-asian-markets.html

Month of May has been positive for Indonesia market and it is the best performing market in the world for the month. This is despite a crash in the commodities market which Indonesia stock market has a big component of resource stocks. It seems like hot money is flowing into Indonesia again. I will keep a watch out for this market.

This is not a good time to invest out of Asia yet as the SGD is strengthening against both the USD and EURO, despite the attractive valuation of the American and European Market. Staying put in Asia and emerging market for now still seems like a good strategy. There is no change in the portfolio this month as I am adopting a watch and see attitude for now. 

Attached is the fund performance of my frequently used funds. As usual, the first and last funds are the best and worst performing fund for the month: