Mail on Sunday article written by Jeff Prestridge
Click to read article – missed out on the great gold rush? here is 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 companies MAG Silver 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 BullionVault. 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
Go for silver – in mining shares for bullion
There are two main ways to get exposure to silver. The simplest route is through a low-cost exchange traded fund (ETF) that tracks the price (dollar price) of silver. These are run by the likes of iShares (part of asset manager BlackRock) and WisdomTree – and can be bought through major online investment platforms.
Alternatively, investors can buy into an investment fund that has exposure to silver – either through holding shares in silver mining companies or through stakes in exchange traded funds tracking the silver price.
Charteris Gold & Precious Metals prefers to hold silver mining companies while Merian Gold & Silver holds a mix of miners and exchange traded funds. Among its top ten holdings are Canadian mining firms Pan American Silver, First Majestic Silver and MAG Silver – as well as a position in fund Sprott Physical Silver that tracks the silver price. Interactive Investor’s Dzmitry Lipski and Chelsea’s Juliet Schooling Latter are both supporters of the Merian fund.
Says Lipski: ‘The manager of this fund, Ned Naylor-Leyland, boasts more than two decades’ experience of investing in precious metals.’
Over the past year, the fund has generated a return for investors of 32 per cent. Over the same period, Charteris Gold & Precious Metals has generated gains of 38 per cent.
Charteris also runs a Premium Income fund that has a third of its assets in the shares of mining companies – the likes of London listed Fresnillo and PolyMetal (gold and silver mining companies) and Rio Tinto and BHP (also London listed, but miners of copper and iron ore).
Silver can be bought via commodity dealers such as BullionVault – and stored by the company in its vaults subject to an annual fee of just less than 0.5 per cent (minimum charge of £6.15 a month).
Silver bullion that is vaulted will cost £65.83 for 100grams including purchase costs of £0.33. Although silver coins can also be purchased, their investment potential is compromised by double digit spreads between buying and selling costs and 20 per cent VAT – a levy that is not imposed on silver held in a vault operated by a member of the London Bullion Market Association.
Given the price volatility of all commodities, investment exposure is best built via regular saving – something that all investment platforms permit.
This article first appeared in the Mail on Sunday on 16 August 2020 (opens a new page)