We have seen strong rebound in financial markets after last year’s global turmoil. Investor risk aversion has come down as they continue to shift portfolios into riskier assets, including commodities, high-yield bonds and emerging market bonds and equities.
However, this recovery has been enabled by strong policy support and government stimulus and will be unsustainable in their absence. In such times, investments which can be termed ‘safe haven’ options increasingly find favour with global investor communities.
Silver and gold are investments which provide the much-needed hedge against market volatility and the rising median rate of interest in the medium term.
Due to increased economic recovery, silver as an industrial metal will surely gain over the long term.
And, as a precious metal, will find favour with investors as a hedging tool in the portfolio. Due to it being a cheap precious metal, it also stands a good chance of gaining market share from gold jewellery.
Gold is set to rise, too, backed by high investment demand due to multiple factors, such as fear of impending inflation due to record-high unemployment globally, rising oil prices (which are also inflationary in nature) and BRIC countries like China and Russia rapidly stocking on gold reserves, indicating pressure to diversify due to current currency exposures.
We find investing in silver, gold and gold-linked structures a very attractive option for medium and long-term investors who are looking for some capital protection as well as profits from upsides.
Gold-linked structures are non-convertible debentures where the interest rate is linked to movement in gold spot prices.
This provides investors fixed income-like features due to coupon payments from non-convertible debuntures, with capital protection and upside from equity markets.
Investors should look for products that invest around 30 per cent of the funds into capital-protected structures, giving recurring income on capital, around 40 per cent into silver, and the balance into gold.
In the event of a rise by 50 per cent, the investor can make a gain of 50 per cent, but during a downside by the same percentage, the loss will be limited to around a third of the investment.
This is due to the interest gain on gold-linked structures which the investment earns over the scheme’s life.
(The author is the managing director and CEO of Milestone Capital, which advises PE firms on asset classes)
