The Bull

Tuesday 21

October, 2014 1:07 PM

Industry Chart

TheBull PREMIUM

  • Penny
  • Stocks
  • &
  • Small
  • Caps

Is the Gold Bull Over? Why Silver, Plantinum and Palladium might be better bets

Is the Gold Bull Over? Why Silver, Plantinum and Palladium might be better bets

By Tony Featherstone 22.04.2013


Gold bugs must feel like investment road-kill after the precious metal’s brutal sell-off this month. Gold bullion had its biggest two-day fall in 30 years, amid talk of weakening jewellery demand from India and China, and potential forced sales of gold from troubled European countries.

Australian gold stocks tumbled. Led by sharp falls in Newcrest Mining, the S&P / ASX Ordinaries Gold index has slumped 42 per cent over one year, and on a total return basis (including dividend reinvestment) has underperformed the ASX 200 by about 64 per cent.

So much for gold being a supposed investment safe-haven as central banks worldwide print more money through their quantitative easing programs and stoke expectations of higher inflation in the next few years. With global economic risks still elevated, gold should be doing better.

Contrarians might see gold’s sell-off as a once-in-a-decade buying opportunity. A chorus of commentators believe gold is heading higher in the long run, as central banks are forced to maintain their quantitative easing programs for longer than expected.

Certainly, a deterioration in the US economic recovery, persistent weakness in the Eurozone, and more mixed economic signs from China would force central banks to remain in aggressive monetary stimulus programs and, in theory, support a gold-price recovery.

However, it is hard to find a catalyst to re-rate gold bullion and gold equities in the next six months, or build a compelling case that gold is attractive on a risk-return basis, relative to other assets.

A slowly recovering global economy; improving investor risk appetite, albeit with bouts of high volatility; and no sign of near-term inflation, is a poor backdrop for gold, which usually trades more on investor sentiment than demand and supply fundamentals.

Also, gold looks terrible from a technical-analysis perspective, with recent price falls breaching key support levels on the US-dollar gold chart. The price momentum suggests further falls.

The other precocious metals - silver and platinum - have more short-term appeal. Silver is an interesting play on an eventual recovery in precious metals prices and stronger demand from the electronics industry, where it is used. Strong growth in electronic gadgets is good for silver.

Sliver has slumped from about US$32 an ounce in January to US22.50. The world’s largest exchange traded commodity (ETC) provider, ETF Securities, noted fund inflows into its silver ETCs in April were the highest in almost seven weeks, as speculators bet on a recovery.

Over 12 months to March 2013, US$336 million has gone into ETF Securities’ silver, platinum and palladium exchange traded products. Expectations of a stronger global economy, and more industrial demand for silver and platinum, attracted bargain hunters to these metals.

I follow money flows between commodities, using ETF Securities data. Speculating on commodity price moves is one thing; seeing how the smart money is moving between commodity ETCs on a global basis is another. For example, ETF Securities notes that most selling in gold has been from speculators with a negative short-term view on gold; long-term investors are still holding gold as insurance against worst-case global economic scenarios.

Platinum and palladium is also seen as a proxy on global economic growth, given their main use is in car emission systems.  Of the two, ETF Securities says palladium has had the largest inflows this year, at US$81 million.

Palladium is typically used in petrol vehicles favoured in the US, and platinum is mostly used in diesel vehicles favoured in Europe. With US car sales healthier than those in Europe, palladium looks a better bet than platinum. Ongoing supply disruptions in South Africa, where these metals are mostly mined, strengthen the medium-term outlook for both metals.

I favour using exchange traded products for precious metals exposure rather than buying equities directly; it eliminates company risk and equity market risk. Gold shares have for years underperformed gains in gold bullion and strengthened the case to buy the commodity instead. A range of commodity ETCs are listed on ASX.

Of course, those with a favourable view on precious metal companies should buy the shares, but there are not many pure silver or platinum and palladium plays to choose from on ASX. And too many precious-metals companies have destroyed shareholder wealth in the long run.

The other attraction of commodity ETCs is the currency. A peaking Australian dollar, or the prospect of slight falls later this year, would be good news for local investors who buy commodity ETCs using our currency. Even so, commodity ETCs suit experienced investors comfortable with higher risk.

Such investors should keep closer eye on silver, platinum and palladium in the next few months. They have been caught in the broader precious metals and commodity price rout, but unlike gold have more exposure to a recovering global economy and improving investor risk appetite. Silver looks especially interesting in the long term, as demand from the electronics industry grows.

 

 >> CLICK HERE TO READ MORE ARTICLES FROM THIS WEEK'S NEWSLETTER

 

Tony Featherstone is a former managing editor of BRW and Shares magazines. All prices and analysis at Feb 14, 2013. The author implies no stock recommendations from the above commentary. Readers should do further research or talk to their financial adviser before acting on themes in this article.



FROM THE NEWSLETTER

Seeking Safety in High Yield Stocks

We searched the ASX for dividend paying stocks... More

Abbott's G20 agenda: climate still the elephant in the room

To date, the Australian government has made it... More

The 10 Biggest Energy Company Bankruptcies

Here are the bankruptcies that will be etched... More

Stocks on a roll: ASX rolling 52-week highs

ASX rolling 52-week highs for the previous... More



WHAT’S ON THIS WEEK

week 24 October 2014
    • 20
    • Medibank Private prospectus Finance Minister Mathias Cormann and Medibank Private managing director George Savvides announce details of Medibank Private prospectus | 4:05 AM
    • RBA Speech by RBA assistant governor (Economic) Christopher Kent to the Leading Age Services Australia National Congress 2014 | 6:08 AM
    • SGH Slater & Gordon annual general meeting | 6:09 AM
    • Book launch Book launch of The Boy From Nowhere, the story of Kerry Stokes | 6:46 AM
    • 21
    • RBA Minutes of Reserve Bank of Australia October board meeting released | 2:18 AM
    • SXL Southern Cross Austereo annual general meeting | 2:18 AM
    • RBA Speech by RBA deputy governor Philip Lowe to the Commonwealth Bank's Australasian Fixed Income conference | 4:29 AM
    • NCM Newcrest Mining quarterly production report | 4:59 AM
    • International Investment Funds Association Annual Conference of the International Investment Funds Association | 5:13 AM
    • BKN Bradken annual general meeting | 5:16 AM
    • ABS Australian Bureau of Statistics (ABS) International merchandise imports for September | 5:41 AM
    • ANZ ANZ-Roy Morgan weekly consumer confidence survey | 5:42 AM
    • QAN Qantas chief executive Alan Joyce to unveil new A330 business suite | 5:42 AM
    • 22
    • Australia-Israel Chamber of Commerce lunch Former ACCC chairman Graeme Samuel speaking at Australia-Israel Chamber of Commerce lunch | 4:06 AM
    • SUL Super Retail Group annual general meeting | 5:13 AM
    • CBA Commonwealth Bank Business Sales Indicator for September | 5:35 AM
    • ORG Origin Energy annual general meeting | 5:40 AM
    • Westpac/Melbourne Institute Westpac-Melbourne Institute Leading Indexes of Economic Activity | 6:05 AM
    • ABS ABS Consumer Price Index for September quarter | 6:05 AM
    • BHP BHP Billiton quarterly production report | 6:06 AM
    • Northern Territory Major Projects Conference Northern Territory Major Projects Conference | 6:09 AM
    • AmCham lunch Twitter Australia managing director Karen Stocks speaking at AmCham lunch | 6:10 AM
    • 23
    • HIA Housing Industry Association-RP Data residential land report for the June quarter | 2:19 AM
    • AGL AGL annual general meeting | 4:23 AM
    • SKE Skilled Group annual general meeting | 4:24 AM
    • TOL Toll Holdings annual general meeting | 4:25 AM
    • AMC Amcor annual general meeting | 4:25 AM
    • BKL Blackmores annual general meeting | 4:26 AM
    • IOF Investa Office Fund annual general meeting | 4:26 AM
    • NAB National Australia Bank's business survey for the September quarter | 4:28 AM
    • BHP BHP Billiton annual general meeting | 4:29 AM
    • RBA RBA governor Glenn Stevens to address annual general meeting of the Australian Payments and Clearing Association | 6:07 AM
    • SUN Suncorp Group annual general meeting | 6:08 AM
    • 24
    • QAN Qantas annual general meeting | 4:26 AM
    • PPX PaperlinX annual general meeting | 4:27 AM
    • QFX Quickflix annual general meeting | 4:27 AM
    • CRZ Carsales.com annual general meeting | 4:27 AM
    • RMD Resmed first quarter results | 4:28 AM

TheBull.com.au

TheBull.com.au

TheBull PREMIUM article search

STOCK QUOTE

Don't know the company code? Click here



Featured Comment

Craig James, of CommSec points out that retail sales grew by 7.4 per cent during the past year, marking the best rolling 12-month period since January 2002

Festive season stocks handpicked by leading brokers

Broker buys

  • ASX Code
  • Company
  • Broker
  • TPMTPG TelecomCalibre
  • VEDVeda GroupCalibre
  • LLCLend LeaseAlpha Securities
  • MQGMacquarieAlpha Securities
  • OSHOil SearchPhillipCapital
  • CWNCrown ResortsPhillipCapital

Broker sells

  • ASX Code
  • Company
  • Broker
  • MINMineral ResourcesCalibre
  • AGOAtlas IronCalibre
  • MYRMyerAlpha Securities
  • CCLCoca-Cola AmatilAlpha Securities
  • QANQantasPhillipCapital
  • MINMineral ResourcesPhillipCapital

Central Banks Rates

  • RBA2.50%
  • FED0.25%
  • BOE0.50%
  • BOC1.00%
  • RBNZ3.25%
  • ECB0.15%
  • SNB0.00%
  • BOJ0.10%

Upcoming dividends

  • ASX Code
  • Company, Div., Franking
  • Ex-Div.

Eight brokers like these stocks

  • ASX Code
  • Company Name
  • Consensus Target
  • DOWDowner EDI Limited$5.78
  • FMGFortescue Metals Grp Ltd$6.89
  • ORAOrora Limited$1.51
  • RIORio Tinto Limited$81.22
  • CSLCSL Limited$73.30

Upcoming Floats

  • ASX Code
  • Company Name
  • Float Date

PLEASE SUPPORT OUR SPONSORS, AUSTRALIA'S LEADING BROKERS:



© Copyright The Compare Group Pty Ltd. All rights reserved.