Silver and gold have surged to multi-year highs, and I think these metals have further to go. So, I’d invest £10k in UK shares issued by silver and gold miners.
Silver and gold have further to rise
Yesterday came with some very bullish news. European leaders agreed to provide certain EU countries with grants and cheap loans worth €750bn. UK shares just like other stock markets yesterday responded positively and so did gold and silver. That might seem strange, given their safe haven status. But I am not surprised. Many banks and financial companies like to hedge their positions. This means they buy high-risk assets and at the same time invest in safe haven assets to minimise the risks.
Another positive factor for silver and gold is the amount of liquidity issued by central banks. Although I don’t believe it will lead to inflation, it will provide many financial companies with plenty of cash. They won’t just use it to invest in bonds and stocks. They’ll also buy physical commodities, including gold and silver.
What is more, the precious metals tend to surge when an unexpected event happens. A good example was the 2016 Brexit referendum. The rise in silver prices was dramatic.
But look at the 2008–09 recession. It made the gold price surge by almost 100%. But the silver price rose from about $10 in 2008 to more than $40 in 2011.
A very similar thing can happen this time, I think. In other words, I agree with my colleague Royston that silver has a greater potential than gold.
How to invest £10k
Based on what I’ve said, you might think that it would make better sense to buy the physical commodities themselves. But no. In fact, that has lots of disadvantages. One of the most obvious ones is the high cost of storage. Your bank might actually give you the option to buy paper silver and paper gold. But still you would not get any dividends or interest. The most logical alternative, in my view, is buying shares of miners. Many of them are listed on the LSE. So, there’s a great option to buy UK shares.
UK shares to buy
Here are some companies that Footsie investors can buy.
Polymetal International is one of the largest gold miners in Russia. Earlier I wrote an article about this company. Not only is it pretty large, it also pays a sustainable dividend of about 3%.
Fresnillo and Hochschild Mining both extract silver. They aren’t very large and are based in Mexico. Although they trade at pretty high price-to-earnings (P/E) ratios of more than 30, they have further to rise, I believe. I am particularly fond of Hochschild Mining because it’s owned and controlled by the same person. This means the interests of management and shareholders coincide.
I recommend getting some sort of exposure to both gold and silver. The best way to do so, I think, would be to buy UK shares. So, I’d use £10k, or any other amount, to buy gold and silver miners.