By Maurice Stouse, Branch Manager and Financial Advisor
Some investors, for the first time in several years, are beginning to take note of precious metals, silver in particular. The reasons are many, but most notable are the world economic climate and the price of silver to gold. Silver bullion, coins, silver mining companies, mutual funds and exchange traded funds (ETFs) have generally seen an increase in investing and prices.
The world economic climate has become much less certain over the past couple of years. Interest rates and unemployment rates are at record lows, yet economic uncertainty abounds. The biggest concern is that demand for goods and services has not grown commensurate with output. A decade of low-cost borrowing and fundamental changes in the demand for certain natural resources has brought about sizable gains in output. Technological advances have also resulted in sizable output gains as well.
The demand for these gains has not kept pace however and world governments and banks have taken steps to lower rates even further to encourage expansion, stimulate growth and consumption. This has not resulted in enough demand to keep pace with the output. This is most notable when you look at inflation, which is not only the pace of increase in the costs of goods and services, but a sign of the growth of the economy. Gross Domestic Product or GDP is another measure for economic growth. Both have continued to move at a rate of approximately 2% a year. Economic growth is considered healthy at 3% for these measures.
So, why the recent increase in investor interest in silver? Often precious metals price increases are a result of inflation, stemming from a weaker currency. This is not currently the case. What has been the case is that the value of silver, relative to gold, is lower than its historical ratio. Silver has most consistently had a ratio of 1:50 versus gold. In other words, gold prices have typically been 50 times greater than silver prices. Currently the ratio is closer to 1:88 or gold is selling at 88 times silver. Many investors might consider that a value gap or that silver has become undervalued, cheaper, oversold and hence an investment (albeit is speculative) opportunity. Year to date silver is up in price approximately 12.05% and up almost 20% over the past three months. Gold is up 17.50% year to date and 19% over the past three months.
Economic uncertainty with trade wars in the news as well as sluggish world growth and growing budget deficits (and debts) are also being noted by investors as reasons for seeking these types of hedges or investment opportunities. Silver has also been seen as a store of value, something that historically retains purchasing power into the future.
To learn more, call or visit an advisor or do your own research on ways to understand the silver market. Exchange traded funds, mutual funds and individual stocks are available through brokerage firms. The United States Mint and of course coin dealers give investors alternatives as well. Be sure you understand the risks associated and that you are comfortable with this being part of your investment program or portfolio.
Maurice Stouse is a Financial Advisor and the branch manager of the First Florida Wealth Group and Raymond James and he resides in Grayton Beach. He has been in financial services for over 32 years. His main office is located at First Florida Bank, 2000 98 Palms Blvd, Destin, FL 32451. Branch offices in Niceville, Mary Esther, Miramar Beach, Freeport and Panama City. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.
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Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.
Holding stocks for the long term does not insure a profitable outcome. Diversification and asset allocation do not ensure a profit or protect against a loss. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. The information has been obtained from sources considered reliable, but we do not guarantee that the forgoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Individual investor’s results will vary.
Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Price fluctuations of silver can be less predictable than other commodities. Global demand for silver can influence its value, as well as the economic cycle. Gold and silver are subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the marker is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Investments mentioned may not be suitable for all investors.
