Is it Time to Put Precious Metals in Your Portfolio?


NEW YORK (MainStreet) — Many experts have been calling "game over" for more than a year, yet the stock market continues reaching new highs. And while the "average length" of a bull market is quoted as being anywhere from four to nine years or more – the experts can't agree on that either – at five years at counting, many believe the current bull market is at least approaching retirement.

And that always brings out the promoters of a precious metal play. Is it time to put a little gold or silver in your portfolio? In a typical Wall Street hedge, Russ Koesterich, chief investment strategist for BlackRock says yes – and no.

"After rising nearly 12% from its June lows, silver has been garnering some attention in recent weeks, as investors and market watchers look for something to get excited about amid the broader market's low volatility and slow grind higher," Koesterich writes in an analysis. "Despite the precious metal's recent rally and though silver may be somewhat more interesting than gold, I'm not convinced that this is a market that most investors want to chase."

Koesterich notes that while silver has had a decent run in recent weeks, it is still recouping losses from the first half of the year. After dropping about 15% through early June, silver has rebounded to a 7.5% gain; commodities are just that volatile.

The unexpected drop in interest rates has boosted precious metal returns, he says. Gold is up almost 10% through the first half of 2014. But Koesterich warns the trends are likely to reverse during the balance of the year: interest rates are expected to begin their climb back up so precious metals, particularly gold, are expected to fall.

"50% of silver demand is tied to industry," he says. "If the economy does improve, silver demand should rise faster. That said, both silver and gold are vulnerable to higher real rates, neither looks particularly mispriced, and investors in silver will need to contend with a lot of volatility."

While Koesterich believes that most investors should always have a small allocation to precious metals, he wouldn't advise a "dramatic increase" in the allocation to either metal at this point.

--Written by Hal M. Bundrick for MainStreet

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