Gold may have been the lone star of the recent credit crunch as investors flocked to this traditional safe house to escape unsteady financial markets. But behind gold’s glittering performance, a number of other precious metals are also seeing record returns, albeit to much less fanfare.
Platinum, palladium and silver are being similarly buoyed by strong demand, which is outstripping supply, and by a weak dollar, which has driven a strong appetite for commodities.
“Gold is far better known as a retail investment but the weakness of the dollar and a general interest in commodities have been positive for a lot of other metals as well as gold,” says David Jollie, author of the Platinum 2007 Interim Review, which was released this week by Johnson Matthey, the speciality chemicals group.
One of the most in demand alternative precious metals is platinum. This metal mainly has industrial uses – it is an important component of catalytic converters in cars, for example – but is becoming increasingly popular as jewellery.
Platinum has therefore seen similar price rises to gold over the past couple of years. Last month the price hit a new peak of $1,454 per ounce, up 27 per cent from the start of this year.
Palladium, another metal in the platinum group, has also risen sharply since August, due to strong interest from investors including hedge funds and those going into new exchange traded funds (ETFs).
Silver, which is more closely correlated to gold, has also enjoyed a successful run, and some analysts believe it has further to go than its yellow counterpart.
Ian Henderson, manager of JPMorgan Asset Management’s Natural Resources fund, says: “All precious metals tend to move in tandem. Gold is the most liquid and the one people most naturally move towards as it is a much much bigger market.”
But in the past five years, the returns from silver have eclipsed those from gold and are not far behind oil.
Stephen Flood, director of Gold and Silver Investments, believes silver is still undervalued. “Silver has missed the boat on some of the recent stellar rises seen in gold, oil and some food prices,” he says. “I think silver will go up a lot more than gold in the next five to 10 years.”
Flood forecasts a rise from the current price of $14.5 an ounce to around $20 next year, and believes silver could hit $40 per ounce.
Since the beginning of this year, however, the most consistent precious metal in terms of relative strength has been platinum, according to analysts.
“Platinum has unique chemical properties and is a very, very rare material, even rarer than gold,” says Henderson. “The price is well underpinned by industrial uses.”
Danny Keating, mining analyst at Collins Stewart, says increasing awareness about the environment should also boost demand.
Platinum is used to control exhaust emissions from cars, particularly diesel vehicles.
“As environmental standards improve, the role of catalytic converters will become more important and, as a result, we expect the consumption of platinum to continue to grow,” says Keating.
The price of platinum has also recently been buoyed by a very tight market. Johnson Matthey forecasts a 2.9 per cent growth in demand this year. At the same time, supply is forecast to fall by 2 per cent this year, leaving the platinum market in deficit. Valuable ounces of the metal have been lost as mines in South Africa have been closed following a number of injuries and fatalities.
Palladium, however, which has similar properties, is still in surplus. But Johnson Matthey expects demand to increase this year due to strong growth in Asian vehicle manufacturing and the use of palladium to replace platinum in some catalysts.
So some investors view palladium as undervalued in relation to its 2001 peak of over $1,000. Johnson Matthey predicts investment activity will prevent the price from falling below $320 in the next six months and could raise it to $420, particularly if platinum and gold prices rise.
However, some analysts have a more bearish view, given the unimpressive fundamentals of palladium and its large surplus.
It is unlikely there will be any rush out of gold into these alternative metals. “Gold is a very emotive investment,” says Jollie. “Investors feel intrinsically safe in gold, especially during dollar uncertainty.”
Fredrik Nerbrand, head of global strategy at HSBC Private Bank, says: “The focus is still on gold. It is the elite of the precious metals and more accessible than the others.”
