BMO Private Bank

BMO Private Bank

April 26, 2013 07:00 ET

BMO Private Bank Examines Precious Metals Price Drop

- Gold and silver spent the last decade increasing by several hundred per cent; inflationary environment did not justify such a rally

- Precious metals have been extremely weak in recent months; downside risk remains

- U.S. housing, although still shaky, may be a more stable investment alternative

CHICAGO, ILLINOIS and TORONTO, ONTARIO--(Marketwired - April 26, 2013) - According to a report from BMO Private Bank, the plunge in precious metal prices over the past few weeks has confirmed the return of a bear market for precious metals. The unwinding of gold and silver prices may prove just as dramatic as their bull market rally in the last decade.

The advent of a precious metals bear market was seemingly confirmed by a series of mid-April plunges in metals prices. The BMO Private Bank report notes that the dramatic fall was mainly a result of a variety of global factors, including Cyprus' possible need to sell its gold and pressure on the Japanese yen.

"The weak price is likely a combination of many factors, but the reality is that precious metals have spent the last decade running up several hundred per cent in an inflationary environment that did not justify such a rally," said Jeff Weniger, Senior Investment Analyst, BMO Private Bank. "Since their most recent peak in 2011, both gold and silver have been struggling and downside risk remains."

Gauging the Price of Gold and Silver

Mr. Weniger encourages investors to gauge gold and silver prices against everyday items over multiyear time horizons.

He notes that, since the last bear market midpoint in 1989, silver and gold both became expensive relative to the prices of basic foodstuffs such as bananas, beef and eggs.

When comparing gold and silver in terms of home prices in the U.S., the report concludes that the tide may be turning in favor of residential real estate.

"The decline in home prices since the housing peak has brought the relationship between real estate and precious metals much closer to levels that prevailed at the end of the 1970s bull market," said Mr. Weniger. "Although the housing recovery is certainly not a sure thing, investors may be wise to turn in their precious metals for a single family home."

About BMO Private Bank, a Part of BMO Financial Group:

BMO Private Bank offers a comprehensive range of wealth management services that include investment advisory, trust, banking and financial planning to meet the financial needs of high net worth clients. Through integrated teams of experienced financial professionals, BMO Private Bank helps its clients realize their financial and lifestyle goals with solutions that are custom tailored and delivered with the highest level of personalized service.

BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC.

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