Gold and silver prices collapse: Should you be buying or selling?
Gold has been making headlines for the past few weeks with rapid price increases; but over the weekend and into Monday, both gold and the precious metal silver fell steeply in the opposite direction.
After gold broke the $5,000 mark last week, more investors turned to that mark as geopolitical uncertainty continues.
But it fell as low as $4,500 per ounce, the standard measure, on Monday morning before recovering slightly. It continues its decline of almost 2 percent on the day by midday GMT.
However, sales in silver became steeper. Silver futures, whose price rose over 150 percent last year, fell below $ 74 on Monday morning from $ 120 on Thursday last week; There was a drop of more than 30 percent during non-business hours over the weekend.
So where do metals sit right now and how do you buy and sell?
How much did the gold price increase?
Gold traded above $5,500 at one stage last week; Many experts still suggest that the $6,000 barrier will be breached at some stage this year.
Even after the decline, it increased by over 10 percent last month and over 70 percent last year. Since the beginning of 2024, the price of gold has continuously risen at a higher rate, constantly setting new records in the process.
Meanwhile, silver is up 125 percent in just six months, including the weekend sell-off.
For some context, the FTSE 100 was up 19 percent last year.
Why did gold and silver fall so fast?
There are always multiple reasons why markets sell off, but in this particular case a few factors stand out in particular.
First, since both are growing so quickly, it’s normal to take profits, especially when investors look to reallocate some of their portfolios.
Additionally, there was a market reaction to the selection of Kevin Warsh as the possible new Federal Reserve leader.
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Finally, many analysts pointed out that more specialized positions had to be sold to cover their positions, further exacerbating the declines.
“Gold’s sharp pullback looks more like a liquidity and positioning event than a change in the asset’s long-term condition. After a strong rally driven by momentum strategies, short squeezes and leveraged buys, the same positioning quickly unraveled, reinforcing downside moves,” said John Wyn-Evans, head of market analysis at Rathbones.
“Reports of volatile trading in parts of the metals market have added to short-term pressure, but in our view this reflects stress among certain market participants rather than systemic weakness in precious metals.”
In other words, a selloff occurred that caused an extra portion of the market to sell, otherwise they would have to pay more to keep their positions open.
But the second wave of selling, although it affected the price, did not reflect a broader expectation that gold (or silver) would become less “valuable.”
Why buy gold and why should everyone have some gold?
Gold has long been considered a “safe haven”; in other words, a place where investors can put their money when there is uncertainty in other areas, such as government bonds or the stock market.
The precious metal is generally not that volatile and may increase in value over the long term.
However, unlike other assets such as shares in a business (through dividends) or cash in the bank (interest-bearing), it does not “pay” anything, meaning that in periods of no price appreciation, it can lag behind other wealth-building tools.
Unlike other metals such as silver or platinum, gold is generally not widely used in manufacturing and production, so its value is largely limited to being a store of value.
In addition, stock markets (or parts of them) can rise quickly when conditions are right; This means that overexposure to gold could mean you miss out on the opportunity when the metal is no longer in favor.
Experts tend to recommend allocating no more than 5-10 percent to gold in a diversified investment portfolio, but the actual amount you need depends on a number of factors specific to you: time frame, amount, risk tolerance, whether you’re focused on preserving or enhancing wealth, and much more.
How to buy and sell gold?
You can of course buy physical gold bars, called bullion, but the complexity of this, along with storage and insurance costs, makes this impossible for most people.
But a simpler method is to buy what is called an exchange-traded commodity (ETC); These are essentially investment instruments that track the price of gold for you and will rise and fall based on the spot price of gold. There is usually a small annual fee associated with them.
Examples of these are the iShares Physical Gold ETC (ticker SGLN on the London Stock Exchange) or the Royal Mint Responsibly Sourced Physical Gold ETC (ticker RMAU).
If you buy them within a stocks and shares ISA, any gains made will be tax-free.
Alternatively, you can invest directly in companies that mine gold, or invest in a broader fund with gold within it if you don’t want to focus on a single metal.
What do the experts say?
Most analysts and companies that follow commodities such as oil or copper, as well as gold or silver, think the rise is still possible, but no one knows when the tide will change or how long it will last.
Geopolitical stresses can change at any time, but multiple researchers have set a target of $6,000 for gold by 2026.
Lale Akoner, global market analyst at eToro, added that gold is replacing long-term bonds as a defensive depository, among other investments. “Gold is increasingly used by investors as a hedge against equity risk and is beginning to replace long-term government bonds as the defensive asset of choice in many portfolios. This shift reflects a structural breakdown in the traditional stock-bond relationship.”
“Since 2022, correlations have hovered around zero, reducing the effectiveness of bonds as a diversification tool.
“Gold, by contrast, is better off as a defensive asset. If the bond-equity correlation remains unstable, gold’s volatility-reducing role could become more entrenched and reshape the way portfolios hedge downside risk throughout the cycle.”
Market research firm Yardeni says gold’s outlook will push the price higher. “We are still targeting $6,000 by the end of this year and $10,000 by the end of 2029,” they said.
