Gold and silver are getting another turn in the spotlight,
luring investors worried about slowing global growth and surprises by central
banks. On Thursday, the European Central Bank offered the latest reason to pile
into precious metals by unleashing a bigger-than-expected bond-buying program
amid continued worries about Europe’s economy. Gold futures ended above $1,300
a troy ounce for the first time since August, while silver neared bull-market
territory, defined as a 20% increase from a recent low.
Gold and silver are drawing buyers of all stripes, a sign
fears about a worsening economic outlook run deep in financial markets. The
metals are popular havens for nervous investors but had fallen out of favor
after setting price records in 2011 as the U.S. recovery gained speed. Now
these metals are luring back some money managers, as collapsing oil prices,
fears of a recession in Europe and volatility in currency markets shake their
faith in stocks and other investments.
Both metals remain far below their peaks, and many investors
are skeptical that economic conditions are dire enough to sustain recent gains.
But others make the case that gold and silver look more promising than stocks,
which are at or near record highs in many markets, or government bonds, where
yields are near zero across the developed world. Some investors also are
embracing metals as a store of value in case policies like those announced by
the ECB spur inflation.
The amount of gold held by exchange-traded funds has surged
1.2 million ounces this month, the biggest monthly increase since August 2012.
Bullish bets on gold futures and options, mostly reflecting wagers by large
investors, are at a five-month high. Sales of silver coins, popular with
individual buyers, also are up, according to U.S. Mint data.
These investors have done well in the opening weeks of the
year. The two metals are the top-performing commodities so far in 2015, with
silver up 17.6% and gold up 9.8%. Gold for February delivery, the most active
contract, ended up $7, or 0.5%, at $1,300.70 a troy ounce Thursday on the Comex
division of the New York Mercantile Exchange. Silver for March delivery, also
the most active contract, rose 0.9% to $18.36 an ounce. It is up 19% from its
November low.
Fund managers stocking up on precious metals say they expect
gold and silver to retain or rise in value more than other havens, like
sovereign bonds or currencies, as the world’s central banks continue to pour cash
into the global credit system.
Gold and silver bulls point to actions like the ECB took
Thursday, when it said it would buy €60 billion ($70 billion) a month in public
and private-sector debt starting in March. The ECB follows in the footsteps of
the U.S. and Japan, which have undertaken similar measures intended to lower
interest rates broadly and spur growth. Another result of those efforts has
been a weaker currency, especially in Japan, which makes domestic wares cheaper
to overseas buyers.
A rapid decline in developed-country bond yields has put
gold and silver on more even footing with interest-bearing assets like
government debt. Precious metals don’t pay interest or dividends, one reason
they have suffered as the Federal Reserve has signaled it was preparing to
raise rates. But benchmark interest rates remain low globally, meaning
investors aren’t missing out on much by parking some of their cash in gold and
silver. The fund has increased its gold and silver holdings by buying bullish
futures positions, shares of ETFs and stocks of mining companies in recent
weeks. But some investors remain bearish on gold and silver’s prospects. Prices
of both metals remain close to multiyear lows, with gold prices down roughly
30% from record highs amid a brightening U.S. growth outlook.
Gold is likely to sink to $1,050 by year-end. However, as
long as uncertainty continues to drive big swings in stocks, bonds and commodities,
gold and silver will retain their appeal with investors.
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