Gold and silver have been volatile, something market timers prefer because they have more chances to buy low. State Street’s silver (SLV 21,07 -0,32 -1,50%) ETF is up 12.6% over the last three months (better than gold), but down 3.5% (worse than gold) over the last four weeks. Much of the move is due to the Fed and traders moving fast in the futures market. The Fed is dovish, but still on track to increase the interest rate two more times this year. Simply put, you can say this is a dovish hike and precious metals traders like this news.
Bob Phillips, principal for Spectrum Management Group in Indianapolis, says if we enter a gold bull market, then silver will likely move up in multiples of the gold price. “If money begins moving into precious metals due to fear, silver likely goes up faster than gold to bring the long term ratio more back in line.”
The long-term mean of the gold to silver price is 37 to 1. Gold currently trades about 70 times the price of silver.
“That’s been the experience over the cycle of the last several gold bull markets,” he says. The reverse is also true: once the move higher starts to cool off for gold, then silver has a tendency to drop in price a lot quicker.
Phillips says he is buying gold, in particular, in select cases for clients with long term horizons who want a hedge against inflation.
“In terms of educating them on the value of holding gold, we illustrate that real interest rates in the U.S. and most of the developed world are currently negative, meaning the rate of inflation is higher than the yield on bonds,” he says. “When we have had negative real rates in the past, gold has done very well, generally compounding at a rate of 19% per annum in the following year.”
For other gold and silver ideas, ETF Securities conducted a one hour webinar this week on the RIA Channel about investing in precious metals. A replay is available. Silver And Gold, Silver Or Gold?
It's not too late to build silver positions for clients looking to do better than gold.
Gold and silver have been volatile, something market timers prefer because they have more chances to buy low. State Street’s silver (SLV 21,07 -0,32 -1,50%) ETF is up 12.6% over the last three months (better than gold), but down 3.5% (worse than gold) over the last four weeks. Much of the move is due to the Fed and traders moving fast in the futures market. The Fed is dovish, but still on track to increase the interest rate two more times this year. Simply put, you can say this is a dovish hike and precious metals traders like this news.
Bob Phillips, principal for Spectrum Management Group in Indianapolis, says if we enter a gold bull market, then silver will likely move up in multiples of the gold price. “If money begins moving into precious metals due to fear, silver likely goes up faster than gold to bring the long term ratio more back in line.”
The long-term mean of the gold to silver price is 37 to 1. Gold currently trades about 70 times the price of silver.
“That’s been the experience over the cycle of the last several gold bull markets,” he says. The reverse is also true: once the move higher starts to cool off for gold, then silver has a tendency to drop in price a lot quicker.
Phillips says he is buying gold, in particular, in select cases for clients with long term horizons who want a hedge against inflation.
“In terms of educating them on the value of holding gold, we illustrate that real interest rates in the U.S. and most of the developed world are currently negative, meaning the rate of inflation is higher than the yield on bonds,” he says. “When we have had negative real rates in the past, gold has done very well, generally compounding at a rate of 19% per annum in the following year.”
For other gold and silver ideas, ETF Securities conducted a one hour webinar this week on the RIA Channel about investing in precious metals. A replay is available.