2016 has been a roller coaster for investors so far.
Global markets had their worst ever start in the first trading days of the year, with the S&P 500 shedding 10.5% by early February. Stocks have rebounded since then, but tension is still in the air with record longs on the VIX Volatility Index.
For this reason, among many others, investors piled into precious metals in Q1 of 2016. Gold finished up an impressive 15.9%, buoyed by record buying in gold ETFs. Meanwhile, silver and platinum, which are considered precious metals with more industrial uses, were also up in Q1 to a lesser extent: 9.4% and 6.6% respectively. Palladium, by far the least talked about precious metal, dropped heavily in January before rebounding up 38% from that low by March.
Global Outlook looking less certain
After raising interest rates for the first time since 2006 in December last year, the US Fed is trying to put on a brave act, but you can already see them backtracking from the strong stance they took last year. Now, they are stating all is not well…and the economic outlook is much weaker than expected.
Global economies are not growing strongly despite the fresh printing of tens of trillions of dollars through quantitative easing, nearly 0% interest rates and now, a growing global trend of negative interest rates. Precious metals have been surging again in recent days against a backdrop of more negative economic data, concerns about corporate earnings, the U.S and global economy and further weakness in stock markets around the world.
Investors Weigh Up Metals Opportunities
But do you buy into precious metals now, after a lot of these metals have already doubled off their lows, given the sector’s track record over the last 4 years? It’s a question you as an investor will have to answer for yourself, taking into consideration your own objectives and risk tolerance.
If you’re looking for an undervalued investment that has great upside potential but little downside risk, plus all the tangible attributes of a hard asset, then consider physical silver.
The silver market appears to be gaining momentum, but spot prices remain well below their highs from last year. The gold : silver price ratio hit 83:1 last month and remains elevated at 77:1. As recently as 2011, gold sold for 32 times the price of silver, and historically it has often sold for 16 times or even as low as 10 times the silver price.
What will cause the spread between gold and silver to narrow?
Most likely a big move upward in silver prices. The silver market opened this morning just above $16.00/oz, surpassing its high mark for the year. After being compressed for many months within a trading range, the silver market now sits like a coiled spring on the verge of breaking out.