Given its wild gyrations, it’s time to reassess silver. As I’ve said before, over time I expect higher prices for the white metal, but I don’t expect it to match the price increases for gold. To explain why, let me give you a bit of perspective. During the past decade and a half, investors have steadily sold from their hoards; now they’re purchasing. Before long, a new low-cost exchange-traded silver fund (now approved by the SEC) will make investor buying much easier, which will add to demand. But other demand sources make for a less promising picture. Industry has seen silver more than double during the past five years and is substituting its use with other metals where possible. And mining supplies of the white metal, meanwhile, are increasing noticeably. None of this makes me think that silver’s bull market is over, but I expect more choppiness and a gradual slowing in the rate of its appreciation.
Private holdings of gold keep climbing, while government hoards shrink. Put differently, gold is finding its way from weak hands into strong ones. During the past decade, private gold ownership in the form of jewelry, bullion and coins has grown from 63% of all above-ground stocks of gold to 68%, while government holdings have declined from 25% to 18%. This trend is likely to intensify. In the emerging economies, gold holdings (mostly in the form of jewelry) provide an important form of savings, and the aggregate pool of savings is growing fast. In the developed world, new low-cost investment alternatives like exchange-traded funds have made gold ownership more attractive at a time when interest rates are low and the bullion price is climbing. Still, gold’s recent appreciation has been modest when compared to that of some other commodities. That will likely change when the US dollar decline gains speed and when inflation, in turn, becomes more visible.
Our bets on the Canadian dollar and the Japanese Yen are working out well. When the Yen traced out its lows late last year, I singled it out as fundamentally undervalued and cautioned that huge speculative positions against the currency were waiting to be unwound. The Yen has since slowly, but steadily advanced. More is yet to come. The Canadian dollar, meanwhile, is once again making new highs. The most recent run-up may be met with some profit-taking, but my forecast that the Canadian currency will trade above par with the US dollar remains intact.
Peter Cavelti’s background as a financial analyst and author spans 35 years and four continents. His grasp of global issues is extraordinary and his comments and books have been published internationally. He was president of Canada’s Guardian Trust and subsequently owned his own firm, which managed some of the best-performing natural resource mutual funds. Peter firmly believes that only an integrated understanding of geopolitical, demographic and economic events can lead to successful investing, and that is what his web service Perspectives is about. If you feel keeping on top of relevant global events takes too much time, Perspectives is for you. Whether it’s investment advice or political analysis, Peter offers his insights in concise and easy-to-read form. Best of all, Perspectives is free. Visit www.cavelti.com and sign up today!