Treasuries and Silver the Clear Winners Since the Election

Now ten days clear of the U.S. elections, it’s worth taking a close look at how various assets have fared. U.S. Treasuries and silver are two of the clear winners so far, a clear sign of strength for both of these investments that could continue in the months ahead and well into next year.

The U.S. dollar and gold along with some other commodities have held up reasonably well, but, probably the most important development in recent weeks has been the decline in broad U.S. equity markets that has wiped out a significant portion of the year-to-date gains that existed right up until voters went to the polls.

Of course, anything could happen in the period ahead and, based on early trading today, silver may soon join the ranks of other commodities at or near break even since November 6th as Treasuries add to their gains, but, as shown below, the post-election markets are decidedly different than that seen during the campaign.

This graphic from BigCharts actually understates the gain of Treasuries which, based on the closing prices for the popular iShares Barclays 20+ Year Treasury Bond (TLT) on November 6th and 15th is actually almost four percent higher, rather than two percent as shown above and, so long as debt troubles persist in both Europe and the U.S., there should be strong demand for U.S. debt.

Since, at this juncture, Europe’s debt problems appear worse than those on this side of the Atlantic and central bankers in Japan seem ready to print more yen to aid their ailing economy, the U.S. dollar has been firm as indicated by the PowerShares DB US Dollar Index Bullish ETF (UUP) above and this strength has been a key factor in pushing the price of both gold and oil slightly lower.

Though hopes for a deal on the fiscal cliff in Washington have U.S. stocks off to a relatively good start today, they’ve dug themselves a deep hole in recent weeks due to the uncertainty surrounding if and how the cliff is to be avoided come January. Should lawmakers somehow agree on short-term fiscal fixes and a credible long-term plan, look for stocks to quickly rebound and Treasury prices to sink.

None of the above is particularly surprising, that is, except for the price of silver as represented by the popular iShares Silver Trust (SLV) above. Normally, during times like this, silver would be expected to follow “risk assets” rather than “safe haven” assets such as U.S. Treasuries that are still perceived to be “risk free”. Of course, how risk is perceived by traders and investors changes over time and, with the gold price still lofty, silver has increased in appeal, particularly in India where demand for the poor man’s gold has been exceptionally strong during the Diwali festival.

I’ve long advised a relatively large asset allocation for both gold and silver bullion in a roughly two-to-one ratio, but, recent market action has me thinking that increasing the allocation to silver might be a good idea.