Could silver play catch-up with gold?
Although gold is traditionally seen as the safe haven against volatile asset classes, investors should not forget the potential of silver, which is due a massive catch-up in price with the yellow metal, according to one fund management firm.
Moonraker Fund Management believes silver is being overlooked by investors and is primed for a major price breakthrough that will outstrip gold, which has dominated the market’s attention in recent months.
Gold has outperformed silver by 46% over the past three years. Moonraker argues that silver, which is currently trading at $18.43 an ounce, is due a catch-up given the long-term correlation between the two metals.
Jeremy Charlesworth, manager of the Moonraker Commodities Fund, comments: "As gold becomes ever more expensive, investors will turn to silver as an alternative precious metal."
He adds that silver has an additional attribute over gold in that it is continually consumed for industrial purposes. "Silver has lots of practical applications and is widely used, for example in plasma screens, mobile phones and for coins."
Charlesworth is also bullish on platinum due to China’s increasing use of the metal in catalytic converters, and believes the price of gold is also set to go much higher, possibly in excess of $5,000. Gold is trading at $1,219 an ounce today.
"Both silver and gold are set to be driven even higher by the same factors - uncertainty around the global financial situation means investors are seeking safe havens and precious metals have a historic role as a store of real value in times of crisis," the manager comments.
Private investors can buy silver via an exchange traded fund (ETF) such as ETF Securities Silver, or through a more general commodities fund such as BlackRock Gold and General or Smith & Williamson Global Gold & Resources for more diversified exposure.
Dennis Hall, founder of independent financial adviser firm Yellowtail, holds a silver ETF in his self-invested personal pension.
However, he is less bullish on the metal’s prospects than Charlesworth. "Gold could be in a bubble of sorts and rather than silver catching up, gold might come back to a lower true value – if we get through the currency/banking issues then this is a possibility," he says.
"If gold does continue to increase then I believe that silver will also increase in value, but it won’t play catch up, it doesn’t have the same sentiment attached to it that gold has in challenging times."
An Exchange traded fund is a security that tracks an index or commodity but is traded in the same way as a share on an exchange. ETFs allow investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust. Investors buying an ETF are basically investing in the performance of an underlying bundle of securities, usually those representing a particular index or sector. They have no front or back-end fees but, because they trade as shares, each ETF purchase will be charged a brokerage commission.
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