It’s clear that the global economy faces the sort of upheaval that hasn’t been seen in living memory. The Bank of England recently predicted that the UK economy will see its biggest downturn in 300 years in the wake of the coronavirus outbreak. Regional and worldwide forecasts continue to get worse and worse as the true costs of the pandemic become apparent too. Don’t rule out another stock market crash!
The boffins at HSBC are the latest to scrub out their most recent estimates and replace them with something chilling. Late last week they predicted that the world economy will shrink by 4.8% in 2020. This is a full 1.5% worse than the predictions the bank put out in early April.
You might think that buying gold or gold-exposed assets like stocks in yellow metal producers would be a good idea in this climate. But loading up here is not the only game in town for safe-haven seekers.
Why not try to get access to silver instead? This is a classic hard currency that stands to gain from the uncertain economic and political consequences of Covid-19. Not to mention the growing concerns over fiat currencies that renewed quantitative easing is causing.
The metals analysts at Morgan Stanley certainly believe there are dazzling days ahead for gold’s little brother. Silver was recently changing hands at $16 per ounce and the number crunchers reckon it will average $14 in 2020 and $16 in 2021. Don’t switch off though as things get much more exciting from then on. The shiny asset will hit $18 in 2022 before breaking $20 in 2023, the banking giant reckons. Its long-term target sits at $23 per ounce too.
Don’t just think of silver as a great asset to have exposure to in these troubled times. It’s likely that the metal’s dual role — it serves as both an industrial and an investment commodity — will support solid price gains as the global economy begins to recover later this decade. The commodity is used for a broad range of practical purposes, such as in medical procedures and for the manufacture of electrical goods.
A top FTSE 100 pick
I reckon one great way to play the silver price is to buy shares in Fresnillo (LSE: FRES). The FTSE 100 company’s shares don’t come cheap. At current prices it trades on a forward price-to-earnings (P/E) ratio of above 35 times. But it’s worth remembering the Mexican mining giant carries a dividend to help cushion the blow, something which investors don’t get if they buy the physical metal or financial instruments like exchange-traded funds (or ETFs) that are backed by silver. This yield sits at a handy 1.5%.
Having exposure to precious metals is always a good idea. Stock market crashes are nothing new and as the coronavirus outbreak proves, they can happen at any time and be truly devastating. So whatever your broader attitude to risk, I reckon buying shares in FTSE 100 firm Fresnillo and holding them for a long time is a great idea.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.