Ned Naylor-Leyland, Head of Strategy, Gold & Silver, discusses the outlook for gold and silver in a period of robust government and central bank support for the global economy. He touches on the diversification potential in holding a mix of monetary metals and mining stocks and why it makes sense to consider an active investment strategy.

Gold has been relatively subdued this year after some big moves last year, while silver has been more interesting. When I look at the outlook for both monetary metals this year – and there are a lot of moving parts – it appears to me to be very appealing.

We are in a period of dovish monetary policy, consistently dovish forward guidance – the Federal Reserve have said it over and over again – and there’s a Democrat in the White House with very big spending plans. This should ultimately lead real interest rates to fall – cutting the yield that a bond investor can expect to earn after inflation – which is good for the price of gold and silver. We see a steadily weakening pattern for the US dollar and this too is a good signal to hold monetary metals.

Safe haven

Negative real rates make gold and silver attractive as stores of true value. Remember that gold and silver are considered to be safe-haven assets, portfolio diversifying assets and are said to offer protection against the risk of renewed inflation. Academic studies show that 2%-5% holding in gold, as a fixed allocation, is optimal for portfolio diversification purposes.


The signals look good, but at the moment investors aren’t very active in gold and silver. Global financial markets are herd-ish and they appear to be chasing equities. Gold and silver are lacking narrative and momentum– two things that modern financial markets seem to require. For me, this makes for an even more interesting setup. The fundamentals of real rates are positive for gold and silver, and the positioning is positive because no one is there.

Falling real yields mean a higher gold price

Keeping active

The best approach to my mind for investing in monetary metals — as in life — is to stay active. I believe that an actively managed investment approach for monetary metals can mean a smaller allocation could offer similar potential benefits to a portfolio as a larger holding in pure gold in an exchange-traded fund (ETF). You have the opportunity to get more bang for your buck, I believe. And governance matters. It is important that bullion is stored and traced to the highest global standards. It’s also important to ensure that you invest in mining companies – more on that in a moment — that operate with the highest standards of governance and employee welfare. An actively managed fund offers this but an index-linked ETF? I’m not so sure.

Kings and populists

When we talk about monetary metals, we mean silver and gold. Why hold both silver and gold? To broaden the potential opportunity set, I believe. Gold and silver are siblings but have different personalities. It has been said that gold is the money of kings, silver that of gentlemen and gentlewomen. Some people also say silver is the populist metal – this has been true through history and was borne out in the Reddit-related demand surge that pushed up silver prices and squeezed supplies starting in January.


Silver tends to be more volatile than gold; it typically increases in value faster than gold when precious metal prices are rising and declines faster when prices are falling. Therefore, it makes sense to increase exposure to silver when prices are rising and reduce when they are falling — which an active fund holding both metals can do.

Deep dive on miners

In addition to holding bullion, taking exposure to shares in companies that mine gold and silver offers the potential to generate superior returns when gold and silver prices are rising, as mining company shares tend to rise (and fall) more than the prices of the metals themselves. That means more potential diversification and broader potential opportunities.


Mining companies that we follow are in a period of improved operational performance as costs are generally moving sideways, metal prices moved higher last year and there’s been an increase in mergers and acquisitions due to depleting reserves among major gold miners. The biggest companies are paying dividends, and some are raising them. Despite this, gold mining equities in the UK are quite cheap, trading below their Q3 2020 highs on some valuation metrics and trading the cheapest in a decade versus the broader UK equities market on other metrics.

Digging for silver

Silver supplies are quite tight in London right now. In March, the LBMA, the independent precious metals authority, produced a report in which it suggested that if the high demand for physical silver seen in January and February had been sustained, London’s stock of physical silver would have been exhausted in a matter of weeks.


Mine supply is limited to around 800moz a year, and supply versus demand issues came to the fore in January as I mentioned earlier. Set against this investment demand is the rising industrial demand for the white metal, which is used in green technology including electric cars, photovoltaic cells (solar panels) and 5G communications.


Nevertheless, silver trades nearly 80% below its all-time inflation-adjusted high of $120 an ounce in 1980.

Do what the central banks do

One last thing, gold is used by central banks to protect against both inflation and risk in markets. The Federal Reserve, Bundesbank, Bank of England, and Bank of China all hold a significant proportion of their total reserves in gold. Gold is not a political currency in the way that the dollar or euro is – it’s not issued by a central bank or a government. And as any central banker will tell you, you can’t print gold or silver.

Silver: The best days lie ahead

Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.


This communication is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice.


The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI, the Management Company), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission. No part of this content may be reproduced in any manner without the prior permission of Jupiter Asset Management Limited. 27261