The plunge in precious metal prices over the past few weeks has confirmed the return of a bear market for precious metals, according to a report from BMO Private Bank.
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 percent 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."
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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 tide may be turning in favor of residential real estate, the report says.
"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 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."