Sounds great, and it would have been if you’d bought a lot of precious metals in July 2015. But as noted by Maria Smirnova portfolio manager of Sprott
Silver Equities Class in Toronto, the S&P/TSX Global Gold Index (in U.S. dollars) had fallen 80% during the preceding four years.
“Gold is up 114% this year, but that’s not much when you consider it came down 80% from its highs [between September 2011 and November 2015],” says
Smirnova. “You would have needed quintuple growth to get back to where we were five years ago.”
“That [114%] gain looks big, but I don’t think we’re at the end of the range yet,” Smirnova adds, pointing to the fact that historically, the gold index’s
average return from a cycle trough has been about 500%.
And, the Sprott Silver Equities Fund may be one of the best places to capitalize on that upside, because silver tends to perform better than gold in bull
markets. “This fund is designed very specifically for silver exposure,” says Smirnova. “It’s designed to benefit from bull markets.
“If you look at the gold/silver price ratio, it oscillates from a range of about 30:1 to 80:1,” Smirnova explains. “During bear markets, the ratio expands,
and silver declines in relation to gold, and when the ratio contracts, silver outperforms gold. Last year the ratio was up to 84:1 and now it’s down to
70:1. I believe we have entered a new up phase in precious metals this year, and that shrinking spread confirms we’re in a bull market.”
Accordingly, Smirnova has been adjusting her fund’s portfolio to maximize continuing gains. “Last year the focus was on the larger, more liquid companies
with production,” she says. “Now we’re adding more juniors, like the exploration companies. Juniors fly more in a bull market; they’re more leveraged to
As for why the turnaround in precious metals has taken place at all, Smirnova points to general global economic conditions. “Gold is driven by
macroeconomic events, with an inverse correlation between real interest rates and gold prices,” she says. “We’re now in a period of low to moderate
economic growth globally, with GDP estimates being revised downward in many countries. Most central banks have adopted very accommodating monetary
policies, and in fact 40% of global sovereign debt now has a negative yield. That’s all helping gold and silver.”
The key catalysts, Smirnova adds, were that U.S. interest rates not having risen as fast as anticipated (“Everyone expected four interest rate hikes from
the U.S. Federal Reserve this year, but so far we haven’t had any.”); Japan has adopted a negative interest rate policy (“People look at the U.S. as being
important, but Japan is very important too.”); and Brexit (“After the vote, Britain lowered its interest rates and introduced quantitative easing, and gold
With little by way of signs that the global economy is picking up as a result of all this stimulation, though, Smirnova believes precious metals will
continue to shine for some time to come, although she hedges when asked how long the sheen will endure: “Globally, the world has not been in a situation
like this before,” she says. “But while we may not be into a prolonged bull market, I’m confident that we have a few more years of upside coming.”
is an experienced financial and business journalist and a frequent contributor to the Fund Library.
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