If you missed the gold rush, here’s the silver lining
THOSE astute enough to have a sliver of their investment portfolio exposed to gold have enjoyed some outstanding returns over the past year. It’s an asset that has truly lived up to the maxim: ‘worth its weight in gold’. Over the past 12 months, its price has reached a series of all-time highs as a result of low interest rates, pitiful yields on government bonds and the economic wrecking ball that has been Covid-19. In time of uncertainty, instability and global tension, gold comes to the fore. It’s why it should always be part of a diversified portfolio.
Yet, a number of investment experts now believe it is time for silver – not just gold – to shine. Although gold and silver prices tend to move in tandem, silver has yet to return to its price highs of 2011 and as a result some believe it is ‘catch-up’ time.
One such expert is Ian Williams, manager of investment fund Charteris Gold & Precious Metals. He believes the price of silver could move to $36 (£27.50) per troy ounce by the end of the year. If correct, it would mean a near 40 per cent jump in its price in terms of sterling.
Although Williams earned his spurs in the investment world by running bond portfolios for 30-odd years, he is now convinced that investors will not make money from holding government bonds in the foreseeable future – a result of inflation and then interest rates rising, causing bond values to fall. He says long-dated gilts (UK Government bonds) represent one of the ‘most dangerous assets in the world’.
On the other hand, he believes commodities are now one of the best investment shows in town and silver could lead the way. He predicts a ‘long-term bull market’ in silver that could last for the next four and a half years – although there will be a lot of volatility along the way.
‘We think the boat has only just left the harbour,’ he says. Over the next two to three years, Williams says the price of silver could move to £40 an ounce, then above £60.
Of course, you could argue that Williams has a vested interest in talking up silver. After all, the £35million fund he runs is 50 per cent invested in silver mining companies – the likes of Canada-based MAGSilver and Pan American. But Williams is not a lone voice. Others believe, albeit less passionately, that the silver price has further to go.
One of these is Russ Mould, investment director of wealth manager AJ Bell. Although Mould says that ‘anyone who thinks they can predict where commodity prices are going is kidding themselves’, he does believe that the long term outlook for silver and gold prices is positive if the world economy progresses in a certain way.
‘Gold and silver have rocketed in price of late and may be overdue a pause for breath,’ he argues. ‘But if the pandemic lingers, global economic growth remains weak and more central bank or fiscal stimulus is applied, then these commodities could come into their own over the long term.’
But he reiterates that any investor should approach these assets ‘with as much care and attention as they would any individual share, bond or investment fund’. In other words, investors should do their homework and only use commodities as a diversifier within a balanced portfolio.
On silver specifically, Mould believes that its price will be supported not just by its reputation as a ‘safe haven’ – alongside that of gold – but its increasing use in key industrial processes. He explains: ‘Silver is the best conductor of all metals and also has anti-microbial attributes that make it a perfect biocide. These chemical properties mean it is ideal for industries specialising in medical equipment, electronics, water purification and solar power. As the world focuses ever more intently on renewable sources of energy, solar panels could be a big driver of silver demand.’
It is a view shared by Juliet Schooling Latter, research director at fund scrutineer Chelsea Financial Services. She says: ‘About 40 per cent of silver is used in manufacturing processes – often cutting edge industries such as 5G telecom networks and medical applications.’
Dzmitry Lipski, head of funds research at wealth manager Interactive Investor, agrees, also pointing to its use in 3D printing.
Adrian Ash is director of research at precious metals trader Bullioncompanies
Vault. He believes silver’s moment has come – ‘Cinderella’s time at the ball’ – and describes the potential for future sharp price rises as akin to ‘gold on steroids’. He says more silver than gold has been traded by BullionVault customers over the past 30 days – a reversal of the trend for earlier in the year – and believes it is because most people are of the opinion that it is catch-up time for silver.
Ash says an often used statistic by precious metals traders to judge when to buy silver is the so-called gold-silver ratio – the multiple at which an ounce of gold currently trades against an ounce of silver. For the past half century, this ratio has averaged 50, but in March this year, in response to Covid-19 and lockdown, it jumped to 125. It is now back to just above 70.
This data, says Ash, suggests silver is trading cheaply relative to gold and is therefore due a price bounce – although an alternative view is that gold is too expensive and could be due a correction (hence the falls of recent days).
A final note of caution from David Coombs, head of multi-asset investments at fund manager Rathbones. Coombs uses commodities in the funds he manages – for example, the £760million Strategic Growth Portfolio has 5 per cent exposure to gold.
Like Williams, Coombs believes silver currently represents a ‘more exciting’ investment opportunity than gold. But, pointedly, he says that ‘excitement is not what I look for when investing’.
He adds: ‘As an investor, you have to ask yourself the following question: “If the financial system crashed again, what would you prefer to have in your safety deposit box – a bar of gold or many more bars of silver? Which would you trust to provide your family’s security?”.’
His conclusion? ‘For me, it would be gold every time.’ Food for thought.