Anyone who has been paying close attention to the price of gold knows that things have been changing for the worst as of late from an investor’s standpoint. Gold is continuing to drop, and this shift is not likely to right itself within the coming year. Now, investors are looking towards another precious metal to help build out their portfolios—silver.
According to The Globe and Mail, U.S. investment guru Jeffrey Gundlach made clear in his latest webcast that looking towards silver could be a very good idea for investors. He also advised the purchasing of U.S. Treasury bonds and urged stock investors to set their sights on the Japanese market.
Gundlach has a strong track record for making accurate investment forecasts, which has many investors scrambling to make changes to their portfolios.
Gundlach’s call to purchase silver actually goes against the feelings that many investors have held for years but is based upon the fact that the gold has been given a bullish view as of late. Gold ETFs have recently experienced massive outflows—the largest in years. As a result, major hedge-fund operators have begun to take a different stance on the metal.
While silver may not have been favored in the past, Gundlach’s predictions stem from the metal having a “high beta,” which means that it does not move proportionately to other metals in a bull or bear market. If Gundlach’s predictions are accurate, it could mean a variety of things.
For one, it could spell a rather dark period for gold, which many investors have already predicted and settled as rote. Not only does this mean that silver could have a much higher return than gold when viewed equally on the dollar, but it also means that silver could yield great losses if prices end up sliding.
It’s important to note that silver was one of the favored precious metals just two years ago, with prices as high as $50 per ounce. Today, prices have dropped to $29/oz, which could easily shift given the current state of gold prices.
Gundlach views precious metals as an excellent entry point for positionless investors as a result of this notion, contributing to his advice to start looking towards silver as “the next gold,” even though he doesn’t see the drop in gold prices as something that will last for more than a temporary period of time.
One of the major reasons gold is falling out of favor has to do with the current operations in central banks. According to The Street, central banks are expanding their balance sheets at a rate of 3.5% per year. All the while, gold is actually continuing to trade in a sideways manner when it comes to pricing.
Many analysts believe this to be a trend that will last for months; it may very well be more than a temporary scenario. This comes as quite a change to past years, in which gold has actually done quite well in times of balance sheet expansions.
Like all financial forecasts, it’s important to take Gundlach’s with a grain of salt. Since the price of precious metals is constantly in flux, it’s really anybody’s guess over how long it will be until gold begins to see an uprising once again.
Many are calling for the metal to make a return in 2014, although it could, of course, be years before things start to change for the better in terms of the metal’s pricing. Because of this, investors are quick to take Gundlach’s advice.
With silver at only $29/oz at the moment, it may well indeed be a great entry point for investors who do not already have leanings towards a particular precious metal or other investment.
The predictions that silver could skyrocket, however, should not necessarily be viewed as fact; it’s certainly a possibility, but perhaps not enough on which to base an entire investment philosophy.
Regardless of one’s stance on investing in precious metals, analysts will continue to keep a close eye on both gold and silver in the coming years. Performances could shift in either direction, and the more patterns that emerge, the easier it will be to make accurate predictions.
from Wealth Daily by Erik Neilson