The breakout of gold and silver is presenting savvy investors with opportunities for massive gains.

By Lee Min Keong

After nine long years, gold has finally swept past its previous high of US$1,920 per ounce set in 2011 and is primed to push past US$2,000 in the coming months. 

In tandem with gold’s rise, silver – often seen to be the poor man’s gold – has also surged past seven-year highs in recent days and is positioning to make a run for its all-time high of near US$50 per ounce. 

Spot gold traded as high as US$1,945.72 on Monday before closing at US$1,942.24, topping the previous record (in US dollar terms) by more than US$20. Meanwhile, spot silver jumped as much as 8.1% to US$24.60 an ounce, the highest since 2013.

After topping out in 2011 in the aftermath of the global financial crisis, gold and silver had fallen into an prolonged bear market lasting for years.

However, the breakout of gold and silver prices is confirmation that the long-awaited bull market for the precious metals is in full swing, and this is garnering the attention of previously disinterested investors and business media. 

With the Covid-19 pandemic wreaking havoc on economies and equity markets around the world, the lure of gold as a safe haven asset has risen significantly.

Analysts also attributed gold’s rapid rise to the weakening US dollar, low-to-negative interest rates, a flood of money printing by central banks in response to the pandemic, rising inflationary pressures, possible global stagflation and the uncertain market conditions.

Forecasts for further gains have been building even before gold’s breakthrough this week. Bank of America Corp has stuck with its April forecast for US$3,000 gold over the next 18 months. 

UBS Group AG sees prices reaching US$2,000 by end-September, its global chief investment officer Mark Haefele said in a note on Monday. The group has added the metal to its “most preferred asset list”, according to a Bloomberg report.

“You simply couldn’t pick a more perfect storm of events which would allow for gold to perform,” said Steve Dunn, head of ETFs at Aberdeen Standard Investments.

“With low interest rate policies, negative real rates, super accommodative monetary policy, huge amounts of global fiscal spending, a weaker US dollar, escalating US-China tensions and no clear end in sight for the coronavirus pandemic, all parts of the equation are coming together,” said Dunn in the report.

Pullbacks present buying opportunities

As a note of caution, investors need to be aware that the surge in gold prices also increases the risk of profit taking and a sharp downside correction. 

However, for those are inadequately invested into gold and silver bullion, exchange traded funds (ETFs) or mining stocks, any pullback in the precious metals offer opportunity to buy on the dip before prices rebound to newer highs.

While gold has hogged the limelight recently, the smart money is investing in silver as it is still some 50% from its all-time high, with the potential for the monetary and industrial metal’s price to reach triple digits, according to some bullish analysts.

They point out that in previous bull markets, gold will move first while silver lags behind. But once silver gets going, it will shoot past gold and outperform it by a country mile. Since it hit a low of US$11.64 per ounce in March, the spot price of silver has rebounded by more than 100%.

Gold fund for local sophisticated investors

Interestingly, in the midst of a global pandemic and an global economic slowdown, Maybank Asset Management Sdn Bhd (MAM Malaysia) launched a gold fund early last month. 

The fund is targeted at sophisticated investors with a long-term investment horizon, offering them the opportunity to invest indirectly in physical gold.

The MAMG Gold Fund is a wholesale feeder fund which aims to maximise investment returns by investing in the Pictet CH Precious Metals Fund – Physical Gold (target fund), a Switzerland-domiciled fund of Pictet Asset Management SA.

“Increasingly we see demand for gold as it is a good hedge against market uncertainties,” MAM Malaysia chief executive officer Ahmad Najib Nazlan said.

He noted that safe haven investment demand created by the pandemic conditions as well as low interest rates and rising money supply is still conducive for gold purchase. 

“Geopolitical issues, a (US) weaker dollar, renewed trade tensions and the upcoming US presidential election may support the demand for it too,” he added.

“Our MAMG Gold Fund will be able to offer investors diversification in their investment portfolios. In these uncertain times, it is important to understand and provide investors with more options and strategies to suit their evolving investment needs,” he added.

Building portfolio resilience with gold

The need for the precious metal in one’s investment portfolio is also echoed by BlackRock, the world’s biggest asset management firm, which advocates having gold as a source of “portfolio resilience”.  Wei Li, iShares EMEA head of investment strategy at BlackRock, said gold is an attractive asset as uncertainty and volatility remain dominant themes for investors. 

Gold will be an attractive diversifier as it has “a low correlation to equities”, says Li (pic).

“In a climate of uncertainty, portfolio resilience is more important than ever: the ultimate shape and timeline of the post-pandemic economic recovery remains uncertain, the trajectory for company earnings is murky, and macro data shows signs of further deterioration. 

“This leaves ample room for volatility and sharpens focus on building resilience through a higher allocation to gold. The short-term outlook for gold shines due to its role as a portfolio diversifier.”

Li added that over the longer term, gold may benefit from strategic tailwinds from pressure on bond yields through large central bank quantitative easing programmes and a lower-for-longer rate environment. 

“For investors looking to diversify within equities, gold producers may also be well positioned to benefit,” she said.

A majority of gold and silver mining companies are listed on stock exchanges in Canada, the US and Australia. With the rapid rise in gold and silver prices this year, many mining stocks have seen their share prices rise 100% and more since the global equity market crash in March.