SMART MONEY – Best Olympic ‘Medal’ for Investors?
By Charles Passy
August 6, 2012
When it comes to the Olympics, one medal comes first: gold. But which metal is best for investors?
It seems hard to argue with the yellow metal, especially after its historic 11-year bull run. In the past five years alone, gold prices have soared 140%, to $1,616 an ounce. But even some of the biggest gold bugs question whether the shiny stuff can keep this going. And silver, while less valuable, has had nearly as good a rally — with prices rising 115%, to about $28 an ounce.
Then there’s bronze — or should we say, copper (bronze is not a pure metal itself, but an alloy composed largely of copper). Measured over the past five years, copper has been relatively flat — its current price is around $3.40 a pound. But over shorter periods (let’s call them sprints), copper can really get off the block. From early 2009 to early 2011, for example, prices tripled to a high of more than $4.50.
Of course, it’s worth noting that the actual Olympic gold medals are made up of silver, for the most part — with gold plating used just to give it that glittering look. With that in mind, SmartMoney asked precious metal analysts and experts to take stock of which Olympic “medal” looks best now from an investment standpoint.
Despite its long rally, many analysts remain bullish on gold’s prospects, since it’s a currency alternative that does well during periods of financial uncertainty (precisely because traditional currencies look less stable by comparison). And there’s still plenty to worry about, they say, with Europe in a state of economic flux (think Greece) and the U.S. facing problems of its own (think an unemployment rate still well above 8%). “With the impending doom of the European Union and the euro and the weakening of the U.S. dollar through more money printing, gold will become an even more attractive investment,” argues Jeff Sica, president of SICA Wealth Management in Morristown, N.J. Sica also predicts that gold will approach the $2,000 mark in the next 12 months.
But what if Europe doesn’t collapse? Or what if the situation takes a while longer to play out? Experts still don’t see much downside. If the problem is pushed “down the road,” says Paul Wobbe, vice president of Sovereign Investment Group in Houston, gold will “stay in a trading range” — meaning it shouldn’t rise or fall dramatically.
Still, there are other reasons to be bullish on gold, says Steven Feldman, founder of GBI, a New York company that assists advisers in buying, selling and storing precious metals. He points to the dwindling availability of the metal. “The supply of gold has declined and may decline further as major miners like Barrick and Kinross have announced the postponement of new mines,” Feldman argues. But Feldman does point to a possible negative for gold: the likelihood that demand from China or India — two big markets for the metal — will start to dry up, pushing prices downward. “But we believe any meaningful price reduction would cause other buyers to enter the market,” he adds.
Silver differs from gold not just in terms of its lower cost — the “poor man’s gold” some call it — but also because of its industrial value. But experts say its investment potential is still very much shaped by the same forces shaping gold: namely, the troublesome global economy. Which is another way of saying if you like gold, you should probably like silver. It’s “an excellent choice for anyone with a little less cash to invest,” says Amelia Culwell, president of Gold & Silver Buyers, a metals specialist in Houston.
But which should you like more? Some say silver, since it’s used in “everything from electronics to water purification,” says Peter A. Sorrentino, senior portfolio manager with Huntington Asset Advisors, an investment firm in Columbus, Ohio. While Sorrentino believes gold’s decade-plus rally could be coming to an end, he argues that productive assets like silver have “one more final run to go.” His price target: $52 an ounce.
Of course, silver was trading above $40 just a year ago — and the drop-off since then could give investors reason to pause. There have also been concerns about price manipulation in the silver market. But Steve Ayer, managing director at HighTower’s Strata Wealth Management in Harrison, N.Y., says investor demand is still there for this “hybrid” metal (it’s a cross between a precious and base metal), especially given “the dramatic reduction in available stockpiles over the past 50 years.” Ayer sees silver at $45 an ounce a year from now.
Unlike gold or silver, copper — the dominant metal used in bronze — is valued largely for its industrial use. (Building a home? You’ll need some 400 pounds of copper to complete the task.) So naturally, the run ups on copper in recent years have often been tied to the booming construction business in other countries, especially China.
But what was once a positive can now be a negative, experts warn — certainly, China’s economy has slowed. And that’s why these investment professionals take a dimmer view of copper than of gold or silver. “Industrial growth has evaporated and with it the demand for copper,” says Albert Lu, managing director of WB Wealth Management in Houston. At best, Lu says, copper’s price will remain relatively unchanged a year from now.
Adding to copper’s woes: There’s more of it coming on the market, “adding to already substantial inventories,” says Peter A. Sorrentino, senior portfolio manager with Huntington Asset Advisors. “Until the basic rules of economics are repealed, supply and demand drive price” and that “bodes ill for copper in the year ahead,” Sorrentino adds.
Put another way, in the race to see which metal is best, copper comes in third to gold and silver, according to our experts. In other words, they award copper the bronze.
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