Some investors may wonder if it's time to jump on the silver bandwagon, but BlackRock's chief investment strategist, Russ Koesterich, says to take it slow.
Koesterich noted silver has surged nearly 12 percent from its June lows, which might look attractive given lower returns in many other assets classes during that period.
"My take: 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," he wrote on
BlackRock's iShares blog.
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Year to date, silver still trails gold, he stated, with gold rising about 10 percent versus silver's 7.5 percent increase.
"The recent jump in silver prices is partly a function of the metal's volatility. Silver tends to be a relatively thinly traded market. As a result, price movements — both gains and losses — are more pronounced," Koesterich explained.
He noted interest rates have dropped in 2014, and that silver and gold prices often move inversely to interest rates.
"Looking forward, however, this environment is unlikely to continue. I expect real rates to start to back up in the second half of 2014. This suggests a tougher second half for precious metals, particularly for gold, which has historically had the stronger relationship with real rates."
Koesterich believes investors should maintain a small allocation to precious metals, but he does not view this as a good time to add to that allocation.
Instead, he sees opportunities elsewhere. "For investors looking to add to positions or for an incremental play on global growth, I'd prefer cyclical stocks or Japanese equities over both silver and gold.
Last month, HSBC trimmed its average silver price forecast for 2014 from $20.80 an ounce to $19.50 an ounce, predicting supply increases would put a lid on rallies,
Kitco News reported.
HSBC also cut its 2015 price forecast to $19.25 from $20.25, but kept its 2016 forecast at $21.50 and its longer-term forecasts unchanged at $25.
"Silver has been negatively impacted by ongoing tapering by the Federal Reserve, a stronger USD (U.S. dollar), and a rotational shift out of hard assets. Equity market strength, in particular, has encouraged investor interest in the stock market and away from bullion, including silver," said James Steel, an analyst at HSBC.
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