Gold: It's not the only precious metal investment option!
Tuesday, 27 September 2011 02:19
By Kate Saines
Inflation might be high, property prices set to fall, savings rates pathetic but gold has been enjoying a boom.
Prices of the precious metal were at an all-time high until a few weeks ago and are up again this week after suffering falls as investors fled to the safety of the US dollar. However, gold has a history of volatility and it usually only falls when the dollar is strengthening.
The price of gold was about $300 an ounce ten years ago It reached a record value of $1,900 an ounce last month. It is now $1,660 an ounce, despite falls over the past two weeks. It is very likely to continue its gradual ascent of the past decade as most analysts believe that investors have only turned to the $US temporarily. This means that anyone with an investment in gold will no doubt be among the rare breed of investors and savers enjoying healthy returns.
Yet for those considering gold as an option there may well be some reluctance. After all, when prices soar to such heady heights the likelihood of them plummeting becomes a greater threat.
And while selling gold will earn you a tidy return, buying it will set you back a good deal more than it would have done a year ago, or even three years previously.
Use the Myfinances.co.uk site to buy and sell gold through reputable merchants, Hatton Garden Metals.
So what are the alternatives?
A good place to start looking is at other precious metals.
According to Lloyds TSB Assetwatch, a bi-annual study tracking the performance of various assets, thanks to the uncertain outlook for the global economy, precious metals ‘continue to shine the brightest among investors’.
In fact precious metals – an asset class made up of of gold, silver and platinum - was the best performing over the first half of 2011 providing investors with a return of 4.9 per cent.
This is a return unlikely to be bettered by many of the savings products on the market at the moment – especially now so many inflation-beating accounts have been pulled.
Siren Thiru, economist at Lloyds TSB, said: “Precious metals continue to provide the best returns for investors against the backdrop of continued anxiety over the prospects for global economic growth and concerns over the Eurozone sovereign debt risk and high inflation.
“Precious metals have benefited from low interest rates over recent years as well as their position as a hedge against inflation and financial market uncertainty.”
Now, here comes the good news for those looking for an alternative to gold. It’s not actually gold which is outshining its ‘precious metal’ counterparts. It is in fact silver.
Lloyds TSB’s figures show, of all the metals, silver ‘significantly’ outperformed the other precious metals, with prices rising by 14 per cent in the first half of 2011.
This was double the increase of gold prices which soared by a still healthy but slightly more modest 6.6 per cent.
It’s not all been plain sailing for silver, however. It has weakened quite a bit since April dropping from its peak of $49 per troy ounce to just $35 per troy ounce by the end of June during a period of increased market volatility.
Yet Lloyds TSB said, despite this plunge, prices at the end of June were still 87 per cent higher than at the same point in 2010.
The problem is, however, silver is much cheaper than gold. And, as Phil Swinfen, a mining analyst for Old Park Lane Capital plc, www.oldplc.com , points out, it has a reputation of riding along on gold’s coat tails.
But this is not necessarily a bad thing.
Mr Swinfen explained: “The white metal is much cheaper than gold by an order of magnitude with investors able to acquire an ounce of the precious metal for £36 currently compared to over $1,700/oz for the yellow metal.”
Meanwhile, its prospects look good as silver is slowly creeping up to the levels of gold. The silver to gold ratio is currently at 47 to one, which means you can buy 47 ounces of silver for one ounce of gold. Over the last few years this ratio has been 60 to one.
And silver advocates, according to Phil Swinfen, believe the ratio has the potential to fall further and if the price of gold holds steady, silver has the potential to appreciate.
There are other factors which could help silver gain momentum. Mr Swinfen said in the short term it looks set to follow gold’s lead and continue to prove popular because – like all the precious metals – it’s a safe haven amid the global debt crisis.
But long term it has a benefit which gold doesn’t – a strong industrial demand.
Mr Swinfen said: “Aside from jewellery, silver has a host of industrial applications such as batteries, catalysts, photography and medical technology.
“In fact, industrial applications and photography represent over 50 per cent of the current demand for silver.
“The rise of the middle classes in Asia looks set to fuel further growth in this area.”
There are several ways you can invest in silver. The most obvious is to buy a piece of the metal – this can be done by purchasing a coin or bar.
Alternatively, you could gain exposure via an exchange traded fund (ETF). You can buy a physically-backed silver ETF, according to Phil Swinfen, and this aims to provide investors with a return equivalent to movements in the spot silver price.
Investors can also gain exposure to silver through silver equities, for example by buying shares in silver mining companies.
Mr Swifen added: “Due to the effect of production costs and operating margins, a ten per cent increase in the silver price may actually produce a 20 per cent increase in profitability for example, which may then feed through the share price.”
Fresnillo plc and Hochschild Mining are two of the main silver players in the London market and worth a look, suggests Mr Swifen.
Read more: Alternative investments: What are the best options?
There are, of course, other precious metals. Platinum is among those analysed by Lloyds TSB’s asset group study but figures are not promising, revealing a 1.9 per cent fall in value in the first half of 2011.
Diamonds are another investment option. Both of these assets can be invested in by buying shares in the mining companies as well as buying the physical asset.
If you are keen to invest in a range of precious metals and commodities you can do so via a fund or investment trust. There are plenty offering access to gold and silver.
Among them are the BlackRock Gold & General fund, Investec Global Gold fund, the MFM Junior Gold fund, SFt1ps Smaller Companies Gold fund and the Smith & Williamson Global Gold & Resources fund.
While all these funds aim to achieve growth through investment in companies connected with the exploration of gold, many also have exposure to firms mining other precious metals including silver.
To give you a taste, Andy Parsons, advice team manager at The Share Centre, last year provided an overview of BlackRock’s Gold & General fund.
He explained BlackRock’s fund invests in companies exposed to gold mining, which means they have a higher degree of liquidity which would not be found by investing in the commodity directly.
He added: “The fund is not solely focussed on gold, the fund manager Evy Hambro, has the ability to identify and invest a maximum of 30 per cent of the fund in mining and other precious metals.
“Gaining exposure to gold via a fund can mean your returns are not only reliant on the demand for the asset but also the management of the mining company and how they manage the raw material.”
Mr Parsons said this fund was suitable for investors who want to have some kind of exposure to commodities within an investment portfolio. But he warned there were risks including the potential impact of any currency fluctuations as well as political problems which might arise.
And, he added: “As this is a sector-based fund and one that is specifically aimed at natural resources, investors may find the fund price tends to be more volatile than many others.”
However you invest, there will always be costs. Fund management companies and brokers levy charges – both annual and initial – and there will usually be a minimum investment of at least £500.
Meanwhile buying a bar of silver will involve buying and selling costs and you will also need to pay for storage.
BullionVault, a secure gold and silver exchange, told Myfinances an investment only becomes cost efficient when a customer’s holding reaches £1,000 or more.
This is because commission fees and storage costs are charged at a percentage of the investment.
Use the Myfinances.co.uk site to buy and sell gold through reputable merchants, Hatton Garden Metals
Find out more about how to profit from investing in gold
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