(Minews) - Gold and silver are getting another turn in the spotlight, luring investors worried about slowing global growth and surprises by central banks.
On Thursday, the European Central Bank offered the latest reason to pile into precious metals by unleashing a bigger-than-expected bond-buying program amid continued worries about Europe’s economy. Gold futures ended above $1,300 a troy ounce for the first time since August, while silver neared bull-market territory, defined as a 20% increase from a recent low.
Gold and silver are drawing buyers of all stripes, a sign fears about a worsening economic outlook run deep in financial markets. The metals are popular havens for nervous investors but had fallen out of favor after setting price records in 2011 as the U.S. recovery gained speed. Now these metals are luring back some money managers, as collapsing oil prices, fears of a recession in Europe and volatility in currency markets shake their faith in stocks and other investments.
Both metals remain far below their peaks, and many investors are skeptical that economic conditions are dire enough to sustain recent gains. But others make the case that gold and silver look more promising than stocks, which are at or near record highs in many markets, or government bonds, where yields are near zero across the developed world. Some investors also are embracing metals as a store of value in case policies like those announced by the ECB spur inflation.
For Mike Ward, a 57-year-old pharmaceutical salesman in Little Rock, Ark., persistently low interest rates and concerns about inflation as a result of central-bank bond purchases led him to cash out of his money-market fund and buy gold and silver American Eagle coins at the start of 2015.
“I thought, rather than have cash, I’d rather have something with the potential to turn a profit and not decrease in value,” Mr. Ward said.
The amount of gold held by exchange-traded funds has surged 1.2 million ounces this month, the biggest monthly increase since August 2012. Bullish bets on gold futures and options, mostly reflecting wagers by large investors, are at a five-month high. Sales of silver coins, popular with individual buyers, also are up, according to U.S. Mint data.
These investors have done well in the opening weeks of the year. The two metals are the top-performing commodities so far in 2015, with silver up 17.6% and gold up 9.8%. Gold for February delivery, the most active contract, ended up $7, or 0.5%, at $1,300.70 a troy ounce Thursday on the Comex division of the New York Mercantile Exchange. Silver for March delivery, also the most active contract, rose 0.9% to $18.36 an ounce. It is up 19% from its November low.
Fund managers stocking up on precious metals say they expect gold and silver to retain or rise in value more than other havens, like sovereign bonds or currencies, as the world’s central banks continue to pour cash into the global credit system.
Gold and silver bulls point to actions like the ECB took Thursday, when it said it would buy €60 billion ($70 billion) a month in public and private-sector debt starting in March. The ECB follows in the footsteps of the U.S. and Japan, which have undertaken similar measures intended to lower interest rates broadly and spur growth. Another result of those efforts has been a weaker currency, especially in Japan, which makes domestic wares cheaper to overseas buyers.
“There’s competitive currency devaluation occurring.…Gold is your natural hedge against that,” said Michael Tiedemann, who oversees $9.5 billion as chief investment officer of Tiedemann Wealth Management.
Mr. Tiedemann said he persuaded his clients to hold on to their gold positions through last year’s declines, adding that some have added to their holdings in recent weeks.
A rapid decline in developed-country bond yields has put gold and silver on more even footing with interest-bearing assets like government debt. Precious metals don’t pay interest or dividends, one reason they have suffered as the Federal Reserve has signaled it was preparing to raise rates. But benchmark interest rates remain low globally, meaning investors aren’t missing out on much by parking some of their cash in gold and silver.
“You’re not giving up a 7% or 10% yield on something. Investors typically weigh the opportunity of doing something, asking, ‘What’s it going to cost?’ And today, the answer to that is that there’s no cost to owning gold,” said Matthew Michael, who helps oversee $4.98 billion at Schroders Investment Management in London.
The fund has increased its gold and silver holdings by buying bullish futures positions, shares of ETFs and stocks of mining companies in recent weeks, Mr. Michael said.
But some investors remain bearish on gold and silver’s prospects. Prices of both metals remain close to multiyear lows, with gold prices down roughly 30% from record highs amid a brightening U.S. growth outlook.
Gold is likely to sink to $1,050 by year-end, says Giovanni Staunovo, a commodities analyst at UBS Wealth Management, which oversees $1 trillion. He sees silver dropping to $14.50 an ounce as the Federal Reserve powers ahead with its plan to raise interest rates and bring U.S. monetary policy in line with historical norms.
“As a result, we’ll have a stronger dollar and weaker gold prices,” he said, adding that he recommends clients stay away from precious metals for the next six months.
However, as long as uncertainty continues to drive big swings in stocks, bonds and commodities, gold and silver will retain their appeal with investors, said Bart Melek, head of commodity strategy at TD Securities in Toronto.
“There’s a sense that the world is a riskier place than it was, and gold might be one of those assets you want to hold just in case things go badly,” Mr. Melek said.
