Time to Buy Silver? One Investment Strategist Doesn’t Think So

Russ Koesterich, chief investment strategist for BlackRock Inc., wrote in a blog post yesterday that even given silver’s recent price rise, he’s “not convinced that this is a market that most investors want to chase.”

Here are his reasons for thinking that:

1. While the metal has had a respectable run over the past month, silver is still playing catch-up after losses earlier this year. Between late February and early June, silver prices fell roughly 15%.  In addition, even with the recent rally, for the first half of the year silver has trailed gold, which has gained nearly 10% versus roughly 7.5% for silver. Prices are based on spot prices for both gold and silver from Bloomberg.
2. The recent jump in silver prices is partly a function of the metal’s volatility. Silver tends to be a relatively thinly traded market. As a result, price movements – both gains and losses – are more pronounced. Looking at monthly price data over the past forty years, gold prices have had an annualized volatility of roughly 20%. While this is high – about a third higher than that for U.S. equities – it pales in comparison to silver prices, which have an annualized volatility of nearly 35%.
3. Part of the reason that both silver and gold have advanced this year is that interest rates have unexpectedly dropped. Commodities in general, but precious metals in particular, tend to produce higher returns when real rates are lower. Real yields – based on yields of 10-year Treasury Inflation Protected Securities (TIPS) – were 0.76% at the end of 2013 versus approximately 0.25% today.

Click here to read the full post from Russ Koesterich.