A Silver Lining to the Covid Cloud

Investment Research Analyst Tracy Zhao looks at why investing in silver could make your portfolio shine

Article updated: 29 July 2020 9:00am Author: Tracy Zhao

As of July, the gold price has reached a new high of $1900 per ounce, passing the 2011 peak of $1823. Year to date, gold has gained 25%. Meanwhile, silver has had a remarkable return of 40% year to date, almost all of which has been earned since the start of July. The long awaited silver Bull Run is at our door step.

Less supply and rising demand in silver

A study by the Silver Institution indicates that global silver mine production fell for the fourth consecutive year in 2019 to 836.5Moz. A further decline is inevitable due to the effect of Covid. At the same time, global silver demand edged higher in 2019 to 991.8Moz as higher net-physical investment was offset by lower jewellery and silverware demand. Favourable structural changes, such as vehicle electrification and a rebound in the key field of photovoltaics, also supported industrial demand.

Technical support from an elevated gold price

Previously, whenever gold has reached $1800, it has been unable to remain at such a high level for very long. However, gold has been standing firmly above the psychological $1800 level for over 2 weeks, while silver has broken the technical barrier of $20 and reached a 7 year high. The Gold/Silver ratio touches key levels of 80 which could cap the rally in silver, but a drop below 80, such as on prior occasions, could usher in big silver outperformance.


Silver is real money

Along with gold, silver is the ultimate form of money, because it can’t be created out of thin air so doesn’t depreciate like paper forms. This can be a good reason to own some physical silver, a real asset that has served as money for thousands of years. More recently, gold and silver have revalued themselves throughout the flat currency as a hedge to currency risk.

Have our Multi Manager portfolios taken advantage of silver?

Our multi manager portfolios have held positions in the Merian Gold & Silver Fund since early 2019, reflecting the manager’s view on current economic and political uncertainty, depressed real yields, and questions over dollar dominance; all of which has supported the rise of the gold price. On top of these, the holdings in silver and mining shares have super charged Merian’s return, over 50% in Q2.

Managed by Ned Naylor-Leyland, Merian offers a unique investment strategy, providing actively managed exposures to gold, silver and shares in mining companies engaged in extracting the two metals. The managers also actively adapt the exposure to these components according to the prevailing economic and market conditions. Having a bullish view, Ned has allocated 80% of the fund in mining stocks against 16% in bullions. Within stocks, more weight has been given to silver mines.

By adding Merian, our Multi Manager Fund gains exposure to precious metals as a hedge against current central bank monetary policies, as well as benefitting from dynamic asset allocation based on Ned’s expertise and views.

Investment products that specialise in precious metal

The following ETCs and actively managed funds provide investors with opportunities to participate in the rally of the precious metals market.

WisdomTree Precious Metals is designed to offer security holders a simple and cost-efficient way to access the precious metals market by providing a return equivalent to the movements in the spot prices of four precious metals. The latest allocations are roughly as follows: Gold 47%, Palladium 29%, Silver 16% and Platinum 7%. This is a product for investors looking for a safe haven asset if they think that conventional currencies will lose their value for various reasons such as another financial crisis.

BlackRock Gold & General aims to provide a return on investors’ capital over the long term by investing at least 70% of the fund's total assets in companies deriving a significant proportion of their income from gold mining or commodities such as in Silver and Platinum. The fund is highly rated within the sector and benefits from a long-established, respected and stable management team.

Wisdomtree Physical Silver is designed to offer security holders a simple, cost-efficient and secure way to access the silver market by providing a return equivalent to the movements in the silver spot price less the applicable management fee. The ETC is backed by physically allocated silver held by HSBC Bank Plc. Only metal that conforms to the London Bullion Market Association's rules for 'Good Delivery' can be accepted by the custodian. Each physical bar is segregated, individually identified and allocated.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Tracy Zhao

Investment Research Analyst & Trainee Investment Manager

Tracy has a master’s degree in Financial Analysis & Fund Management, and a background in financial services and auditing. She supports our Platinum 120 preferred range of funds and works closely with our fund managers, undertaking fund research, analysis and MI reporting.

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