There has been heightened investor interest in select commodities such as gold and silver over the past few months. But the recent sell-off, especially in commodities after a long bull-run that started in 2002 has dampened investor interest to a certain extent. ET sought the views of experts to provide a global as well as local perspective on investing in gold and silver. Excerpts:
Four experts:
Jonathan Barrat , Managing Director, Commodity Broking, Australia
Jayant Manglik , President, Religare Commodities, India
James Moore , Commodity Analyst, The Bullion Desk, UK
Lakshmi Iyer , Head ( Fixed Income & Product )), Kotak Mahindra Asset Management, India
Following are the views of the experts:
Near term outlook
Jonathan Barrat: We expect prices to remain weak for now on account of liquidation, ahead of weak equity markets. However, with spiralling inflation around the world, prices might see a support.
Jayant Manglik: We are bullish on gold for at least the next six months. While we are bullish on silver too, the convincing power here is not as strong as that in the case of gold. A year down the line, we expect gold to move up by 10-15% from the current levels. In the case of silver, the upside may be around 5-10% from current levels.
James Moore: High interest in gold and silver is an outcome of the European sovereign debt situation and turmoil in the Middle East. At the same time, interest rates globally are at very low levels. We do perceive a genuine buying interest in gold and it may see an upside of 3-4% by the year end. As far as silver is concerned, the upside expected is about 10-15% from the current levels.
Lakshmi Iyer: There is already a good correction in gold, as expected. We continue to be bullish as globally, people are looking to diversify out of currency to gold. Expect a CAGR of about 10-15%. Silver, has seen a steeper correction which may continue for some more time. However, there will be an upside and expect silver to return a CAGR of 15-20%.
Silver outshining gold
Jonathan Barrat: There is potential for silver to outperform gold. However this is a result of the industrial use for the metal. If economies around the world start to pick up dramatically, then silver has good potential.
Jayant Manglik: Historically, over a period of 15 years, the growth rate in silver and gold has been quite parallel. However, silver is more volatile and tends to move up suddenly at an extremely fast pace. It is the trader's favourite.
James Moore: Over a very short term period, we have seen silver outperforming gold and the gold and silver ratio currently is at its lowest level in the past 25-30 years. Over a long term, gold definitely is a better performer because of its stability and thus tends to attract long-term investment.
Lakshmi Iyer: While gold is perceived as a hedge against inflation, silver has more of industrial usage. Nearly 80-90% of silver generated goes for industrial usage. So as long as we see a global growth, there will be industrial usage and it is difficult to perceive a correction. So silver can continue to outperform gold this year as well.
Silver - A hedge against inflation
Jonathan Barrat: Yes, silver can benefit from gold in this respect, as an inflation fighter. Although academically, it does not fight inflation, the perception is that it does. So as inflation picks up, gold should be supported and this will help support silver.
Jayant Manglik: In the Indian context, silver may acquire a place closer to that of gold. But going by history, there are remote chances of silver replacing gold. The key consideration is that silver is much more easily found than gold. Gold is a more dense metal and is well reckoned as a store of value for over 5000 years.
James Moore: Silver can certainly be a hedge. It has always been a monetary metal and historically has been used as a medium of exchange as well as a hedge against inflation. In many ways, the use of silver has been for the same reason as that of gold. A switch to silver is in fact a cheaper alternative.
Lakshmi Iyer: No, it cannot. Historically gold has been tested as a store of value. Silver can never take that place, broadly because of its end use which is industrial. We cannot imagine central banks stocking silver instead of gold.
Silver ETFs in the global arena
Jonathan Barrat: Silver ETFs are doing well. One of the concerns we hold is that the ETF market has the potential to drain capacity from the market. This can create a false market value as has been the case for copper. The ETF is a good market for investors who do not like volatility.
Jayant Manglik: They are doing well. But gold still remains, by far a better investment option worldwide. However, we believe that Silver ETFs will be extremely popular in the Indian market given high demand for this commodity.
James Moore: It has been tremendous. A lot of interest is building up in this product due to strong prices. It has opened the door for investing in commodities to the individual investor.
Lakshmi Iyer: Globally, both gold and silver ETFs have added significantly in tonnage because of price appreciation. The Indian market is definitely conducive for silver ETFs as it is more affordable for a retail investor vis-a-vis gold ETF.
Buy now:
Jonathan Barrat: Going along in the leveraged market I would provide caution on this. However, generally I feel that retail investors need more education on how the markets operate. Investors, however, should have some exposure either in physical form or through the ETF route. It is just a good hedge.
Jayant Manglik: From a short-term perspective, silver is more favourable for traders, best avoided by retail investors. But from a standpoint of 5-10 years, there is not much to choose between gold and silver as returns have been more or less similar. Between the two, gold is a better option as it is less volatile.
James Moore: If you have a long-term view, then investments can be done at the current levels. But personally I would be a little reluctant to enter the markets now for we can expect a deeper correction in the short term.
Lakshmi Iyer: Retail investors can invest at current levels provided they have a long-term outlook. Long-term for investing in silver would mean at least three years. As far as gold is concerned, it is one metal that one can hold till eternity. Silver is more speculative and retail investor need to tread cautiously when it comes to this commodity.
Impact of quantitative easing (QE) 3:
Jonathan Barrat: If we get a QE3, it should be inflationary. I feel that the Federal Reserve will be reserved in issuing another package as it creates a false economy, something we are witnessing at the moment.
Jayant Manglik: QE3 will make the dollar weaker and so one can expect prices of gold and silver to move up. This will lead to other fears like inflation and hyperinflation and hence will drive HNI and retail investors' money to gold and silver.
James Moore: The Fed is not likely to raise interest rates and so gold is expected to do well. A low interest rate regime builds a stronger case for the investor to invest in the precious metal.
Lakshmi Iyer: While personally I do not perceive a QE3 happening, but if it is around, it will be extremely positive for both gold and silver
~
Four experts:
Jonathan Barrat , Managing Director, Commodity Broking, Australia
Jayant Manglik , President, Religare Commodities, India
James Moore , Commodity Analyst, The Bullion Desk, UK
Lakshmi Iyer , Head ( Fixed Income & Product )), Kotak Mahindra Asset Management, India
Following are the views of the experts:
Near term outlook
Jonathan Barrat: We expect prices to remain weak for now on account of liquidation, ahead of weak equity markets. However, with spiralling inflation around the world, prices might see a support.
Jayant Manglik: We are bullish on gold for at least the next six months. While we are bullish on silver too, the convincing power here is not as strong as that in the case of gold. A year down the line, we expect gold to move up by 10-15% from the current levels. In the case of silver, the upside may be around 5-10% from current levels.
James Moore: High interest in gold and silver is an outcome of the European sovereign debt situation and turmoil in the Middle East. At the same time, interest rates globally are at very low levels. We do perceive a genuine buying interest in gold and it may see an upside of 3-4% by the year end. As far as silver is concerned, the upside expected is about 10-15% from the current levels.
Lakshmi Iyer: There is already a good correction in gold, as expected. We continue to be bullish as globally, people are looking to diversify out of currency to gold. Expect a CAGR of about 10-15%. Silver, has seen a steeper correction which may continue for some more time. However, there will be an upside and expect silver to return a CAGR of 15-20%.
Silver outshining gold
Jonathan Barrat: There is potential for silver to outperform gold. However this is a result of the industrial use for the metal. If economies around the world start to pick up dramatically, then silver has good potential.
Jayant Manglik: Historically, over a period of 15 years, the growth rate in silver and gold has been quite parallel. However, silver is more volatile and tends to move up suddenly at an extremely fast pace. It is the trader's favourite.
James Moore: Over a very short term period, we have seen silver outperforming gold and the gold and silver ratio currently is at its lowest level in the past 25-30 years. Over a long term, gold definitely is a better performer because of its stability and thus tends to attract long-term investment.
Lakshmi Iyer: While gold is perceived as a hedge against inflation, silver has more of industrial usage. Nearly 80-90% of silver generated goes for industrial usage. So as long as we see a global growth, there will be industrial usage and it is difficult to perceive a correction. So silver can continue to outperform gold this year as well.
Silver - A hedge against inflation
Jonathan Barrat: Yes, silver can benefit from gold in this respect, as an inflation fighter. Although academically, it does not fight inflation, the perception is that it does. So as inflation picks up, gold should be supported and this will help support silver.
Jayant Manglik: In the Indian context, silver may acquire a place closer to that of gold. But going by history, there are remote chances of silver replacing gold. The key consideration is that silver is much more easily found than gold. Gold is a more dense metal and is well reckoned as a store of value for over 5000 years.
James Moore: Silver can certainly be a hedge. It has always been a monetary metal and historically has been used as a medium of exchange as well as a hedge against inflation. In many ways, the use of silver has been for the same reason as that of gold. A switch to silver is in fact a cheaper alternative.
Lakshmi Iyer: No, it cannot. Historically gold has been tested as a store of value. Silver can never take that place, broadly because of its end use which is industrial. We cannot imagine central banks stocking silver instead of gold.
Silver ETFs in the global arena
Jonathan Barrat: Silver ETFs are doing well. One of the concerns we hold is that the ETF market has the potential to drain capacity from the market. This can create a false market value as has been the case for copper. The ETF is a good market for investors who do not like volatility.
Jayant Manglik: They are doing well. But gold still remains, by far a better investment option worldwide. However, we believe that Silver ETFs will be extremely popular in the Indian market given high demand for this commodity.
James Moore: It has been tremendous. A lot of interest is building up in this product due to strong prices. It has opened the door for investing in commodities to the individual investor.
Lakshmi Iyer: Globally, both gold and silver ETFs have added significantly in tonnage because of price appreciation. The Indian market is definitely conducive for silver ETFs as it is more affordable for a retail investor vis-a-vis gold ETF.
Buy now:
Jonathan Barrat: Going along in the leveraged market I would provide caution on this. However, generally I feel that retail investors need more education on how the markets operate. Investors, however, should have some exposure either in physical form or through the ETF route. It is just a good hedge.
Jayant Manglik: From a short-term perspective, silver is more favourable for traders, best avoided by retail investors. But from a standpoint of 5-10 years, there is not much to choose between gold and silver as returns have been more or less similar. Between the two, gold is a better option as it is less volatile.
James Moore: If you have a long-term view, then investments can be done at the current levels. But personally I would be a little reluctant to enter the markets now for we can expect a deeper correction in the short term.
Lakshmi Iyer: Retail investors can invest at current levels provided they have a long-term outlook. Long-term for investing in silver would mean at least three years. As far as gold is concerned, it is one metal that one can hold till eternity. Silver is more speculative and retail investor need to tread cautiously when it comes to this commodity.
Impact of quantitative easing (QE) 3:
Jonathan Barrat: If we get a QE3, it should be inflationary. I feel that the Federal Reserve will be reserved in issuing another package as it creates a false economy, something we are witnessing at the moment.
Jayant Manglik: QE3 will make the dollar weaker and so one can expect prices of gold and silver to move up. This will lead to other fears like inflation and hyperinflation and hence will drive HNI and retail investors' money to gold and silver.
James Moore: The Fed is not likely to raise interest rates and so gold is expected to do well. A low interest rate regime builds a stronger case for the investor to invest in the precious metal.
Lakshmi Iyer: While personally I do not perceive a QE3 happening, but if it is around, it will be extremely positive for both gold and silver
Source : ET
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