Regular readers will know that at MoneyWeek we most like to buy things that other people hate, be it out-of-fashion antique furniture or under-valued high-yielding shares. So this week we’ve had a look at silver, one of my favourite investments.
The silver market has been horribly volatile recently, soaring to over $8 a troy ounce at the start of the year before tumbling back down to $5.50 in a matter of weeks. The speed of the fall took many silver bulls by surprise and seems to have now turned most of them into silver bears. But I think they’ll regret their change of heart: silver’s fundamentals are fantastic and a careful look at the metal’s price chart makes it clear that the sharp rise and fall was just a blip in a relatively steady upwards trend.
As James Ferguson, MoneyWeek’s resident chart fanatic, points out, sharp reversals like this usually run counter to the direction of a trend. Remember the start of the dotcom crash? At that time there were several sharp but short rallies, especially in the US Nasdaq index.The press often got quite excited about these big up-days – using them as evidence that all would be well – but of course they really only confirmed that the real trend was in the opposite direction. Down, and then down some more. So I remain a big fan of silver. The question is how to get exposure. Given the volatility we saw at the beginning of the year, spread betting on the price is only for the very steely nerved (or those who have trailing stop-losses on their bets). At the same time, shares in many of the pure-play silver miners are very speculative investments.
So what to do? Hold some shares, but also buy old silver. There isn’t much demand for it these days. Why? Because, just like Victorian furniture, it’s out of fashion. People see silver as something from a more formal age, and as a Sotheby’s expert told me recently, they think they have to polish it all the time and can’t be bothered. So they buy sets of stainless steel cutlery from Habitat instead. That’s a mistake: today silver forks don’t cost much more than steel, they look nicer, you can put them in the dishwasher and they count as an investment and a hedge against inflation. Note that in 1979 a silver pudding spoon cost around £5. By 1980, silver had jumped so much that the same spoon would have set you back £30. If that happens again, I’ll be living off the contents of my kitchen for years. And if it doesn’t? I’ll still have much, much nicer looking cutlery than everyone else.