‘Silver and gold have I none’ — Is your portfolio without silver or gold?
The Sterling Report
Both silver and gold have been two of the best performing precious metals on the market over the last two years. Gold has always been perceived as the "must have" commodity in one's portfolio. It is considered a safe haven, one to which investors rush during times of economic turbulence and turmoil. It acts as a hedge against inflation, in other words, it acts as a store of value. As one analyst said, it should be treated as an insurance policy. This attribute makes it ideal for pension funds and for individuals who wish to put aside funds for their retirement.
However, metals are most lucrative for traders and investors that are seeking to make a gain the short to medium term. Gold has experienced a sharp increase in value over the past five years. The ishares Gold Trust has produced an average annualized return of 21.75per cent since inception in 2005. Although the price of gold is extremely high at present, US$1,403.97 (17/3/2011 at 3:59pm, an increase of US$5.10 over yesterday's price) projections are that the price could see further increases by year end. Analysts are pointing to a sustained general uptrend in the commodity and there are predictions for continued upward movement in the short term. High gold prices tend to correspond with uncertainty, low levels of market confidence and a weak US dollar.
Much of what has been said of gold also applies to silver which has exhibited a similar trading pattern to gold. The price at the time of writing (17/3/2011 at 3:59pm) was US$34.27, an increase of US$0.02 over yesterday's price. In early March 2011, silver increased to about US$36.00 after it had fallen to US$25.85 in late January 2011, an increase of 39.2per cent in just over one month.
Metals present very lucrative investment opportunities in the short, medium and long term. They are a very volatile investment and react quickly to market sentiment. Over the long term, they serve well as a store of value. The following table exhibits the upward movement in the price of gold over the past 30 years (source: ishares).
(Insert: Sterling Table)
It is interesting to note that over the past 30 years, the price of gold more than quadrupled, having moved from approximately US$300 in 1981 to US$1,403.97 at the time of writing.
As mentioned above, the price of gold increases with market uncertainty and global crises. This is evidenced in the table above which shows that that the price of gold increased rapidly during the Persian Gulf War in the 1980's and the recent global recession. However, during times of buoyant growth in the US economy and strength in the US dollar, the price of gold fell notably (i.e. in the late 1990's)
Most recently, with the tragic circumstances in Japan, commodity prices initially fell because the market felt that demand from the world's third largest economy may decline in the short term. However, this also implies that the reduced demand may slow the global economic recovery and further increase the attractiveness of metals. Analysts are divided in their assessment of the situation and are waiting to make their bets as the situation unfolds.
In conclusion, these two precious metals are ones to watch in the next few days. Essentially, because of the longterm value of the metals, they can easily find a worthwhile place in any well constructed portfolio. When to buy is a question for market forces and must be carefully considered.
Pamela Lewis is the Manager of Investment and Client Services at Sterling Asset Management. Sterling provides investment management and advisory services to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: firstname.lastname@example.org or visit our website at www.sterling.com.jm