gold investment, silver investment

Precious metals investment terms A to Z

Analyst

Analyst is an individual whose primary function is a deep examination of a specific subject. Precious metals analysts study factors influencing the price of precious metals by various methods and try to predict future moves. Some are more accurate than other.

Eric asks:

On his way back from a walk Eric notices that Jill is busy planting some flowers in her garden.

Eric, the Beginner

Eric, the Beginner

Hey Jill, I thought you had a golden thumb, but now it turns out you have a green one too.
Prof. Jill, the Investor

Prof. Jill, the Investor

Gold thumb for precious metals investments, green for the garden.
Eric, the Beginner

Eric, the Beginner

What are you planting?
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Definition

In general, analysts are persons who undertake a close examination of a specific subject. Precious metals market analysts study the current situation in the precious metals market and attempt to predict the future moves of prices. From a wide range of potential drivers of metals prices they try to pinpoint the key ones that will most likely influence these prices at a given moment in time.

In this sense, precious metals analysts can be seen as trying to look into the future. Obviously, nobody has a crystal ball and this is the reason why analysts make mistakes. Many complicated processes influence the price of precious metals and not all these processes can be easily observed. Some can only be seen in hindsight, which is not very helpful to investors. This is why prices of metals are often perceived by the public as being random. However, even if analysts are not able to precisely predict the next move, they often can point to the most likely scenarios. This is extremely important for investors.

Keeping this in mind, makes it easier to understand that no analyst can be right all the time. In fact, you should be extremely cautious when analysts boast 100% effectiveness. It’s a simple truth that no one can be right all the time, especially in financial markets. Usually, if an analyst is right most of the time, approximately 70-80% of the time, this would be considered a great result.

This also implies that you can’t judge the performance of an analyst based only in the short term. He could happen to be on a lucky streak. To properly assess the accuracy of a particular analyst, you need to spend some time to watch their reacttion to different situations and later compare their forecasts with real price changes. Only after that would you be able to determine if they qualify to be in the top group of analysts which means that they are right in 7-8 out of 10 cases.

The common ground among precious metals analysts is that they attempt to predict the future but they go about it in various ways. Some rely on technical analysis, some on fundamental factors, and others on quantitative analysis or intuition. Some mix these tools (or other tools) and other rely solely on one of them. It is considerably hard to find two similar precious metals analysts and two identical forecasts – choosing an analyst to support your investment decisions is therefore important as some may turn out more accurate than others.

Analysts vs. investment tools?

We have pointed out that analysts cannot always be right. So you might ask yourself if it is possible to improve your decisions in other ways than relying on analysts. As a matter of fact, you can do that by resorting to various investment tools. These tools offer the objectivity analysts sometimes lack and they can precisely measure the developments on the market. However, you need to remember that there is no real competition between analysts and investment tools. In reality, you must use both quantitative methods (tools) and qualitative ones (analysts’ opinions).

While tools offer specific results, they more often than not operate within a scheme. It is analysts who can think outside the box and make decisions breaking the scheme, which is priceless as market patterns and initial assumptions may change in a blink of an eye.

Diversification between analysts / money managers

Since both analysts and tools are sources of signals, one can diversify between tools and analysts, which is likely to result in decreasing the portfolio's variability (which is usually referred to as the portfolio's risk). The same can be said about individual tools and individual analysts or money managers. As you may know from the report about precious metals portfolio structuring (in the Key Insights section), we are fans of diversifying many things - even approaches. That's why we treat insurance capital, long-term investments and speculation separately. Within the speculative capital there's a diversification between sources of signals - ourselves and indicators. As more tools are launched, the diversification benefits will increase. Analysts or money managers that apply active management could be seen as sources of signals as well. Diversifying between them can also prove beneficial.

One way to apply this kind of diversification is to follow a given analyst to the letter with a part of one's capital and manage the remaining part subjectively (for instance taking also other analysts or tools into account). In the case of money managers, the idea would be to use half (or more, or less, depending on how much you trust a given manager’s abilities) of your capital to invest in their product and use the remaining part to invest on your own / based on other signals.

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