Is silver the new gold in 2013?
Investors could do well to invest in silver in 2013, according to ETF Securities.
"Silver is a hybrid metal and is likely to receive strong support in 2013, as industrial demand rebounds at the same time as we are seeing strong investor appetite for precious metals to hedge economic uncertainty," explains Martin Arnold, research director at ETF Securities.
The precious metal's spot price could rise from its current $31 per troy ounce to nearer $40 through the course of the year, according to a Bloomberg survey of 49 market insiders. And some commentators believe it could even reach $50 per troy ounce.
Growing investor sentiment is down to several factors. First, more than half of silver's demand is driven by its industrial use, as a key component in the manufacture of electronics and solar technology, for example. This source of demand is expected to strengthen during the course of 2013, thanks in part to expectation that the re-election of the Obama administration will keep monetary policy loose in the US – the second cause for optimism.
The third reason is more to do with silver's credentials as a store of intrinsic value. With major economies such as the UK, eurozone, Japan and the US pumping money into their financial systems – in the form of quantitative easing in Britain and the expansion of the bond-buying programme in the US – their currencies are being devalued, and investors increasingly turn to commodities, such as gold and silver, to offset this and to hedge political risks.
However, Patrick Connolly, a certified financial planner at AWD Chase de Vere, warns investors not to be dazzled by the figures. "We think investors should hold nothing in silver. Even though some commentators believe the price will rise, we would argue that silver is a poor man's gold. While there may be some fundamental reasons to justify investing in gold, the same cannot be said for silver, where there is a much smaller market, meaning greater volatility and less liquidity."
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
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.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.