The Bull

Thursday 28

August, 2014 5:06 PM

Industry Chart


  • 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.




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.


Gold Rising-Rate Fallacy

The bottom line is the popular notion that... More

What is and isn't a 'sovereign risk'

Labelling everything as "sovereign risk" is not... More

Top 10 shorted stocks

Each week we feature the top 10 shorted stocks... More

Stocks on the slide: ASX rolling 52-week lows

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


week 29 August 2014
    • 25
    • UGL UGL full year results | 5:40 AM
    • NIB nib Holdings full year result | 5:40 AM
    • PFL Patties Foods full year results | 5:41 AM
    • WSA Western Areas full year results | 5:42 AM
    • ORA Orora full year results | 5:42 AM
    • BSL BlueScope Steel full year results | 5:44 AM
    • 26
    • CEDA Woodside executive Rob Cole speaking at CEDA Lunch about improving gender equality in Western Australia | 2:18 AM
    • MMS McMillan Shakespeare Group full year results | 2:18 AM
    • AOFM AOFM to issue $200 million of November 21, 2018 indexed Treasury bonds | 2:19 AM
    • BKL Blackmores full year results | 4:58 AM
    • PDN Paladin Energy full year results | 4:59 AM
    • ANZ ANZ-Roy Morgan weekly consumer confidence survey | 5:41 AM
    • SCG Scentre Group half year results and operational update | 5:43 AM
    • BLY Boart Longyear half year results | 5:43 AM
    • PBG Pacific Brands full year results | 5:43 AM
    • VRT Virtus Health full year results | 6:46 AM
    • 27
    • ABS Australian Bureau of Statistics construction work done for the June quarter | 2:23 AM
    • SWM Seven West Media full year results | 3:18 AM
    • WFD Westfield Corporation half year update | 4:56 AM
    • SVW Seven Group full year results | 4:56 AM
    • LLS Lend Lease full year results | 5:34 AM
    • WHC Whitehaven Coal full year results | 5:35 AM
    • PRT Prime Media full year results | 6:05 AM
    • FLT Flight Centre full year results | 6:05 AM
    • BLD Boral full year results | 6:05 AM
    • WOR WorleyParsons full year results | 6:06 AM
    • CHC Charter Hall Group full year results | 6:07 AM
    • AOFM AOFM to issue $600 million of April 21, 2029 Treasury bonds | 6:10 AM
    • VED Veda Group full year results | 6:10 AM
    • 28
    • AOFM AOFM to issue $500 million of Treasury notes, maturing on January 23, 2015 | 2:17 AM
    • QAN Qantas Airways full year results | 5:35 AM
    • RHC Ramsay Health Care full year results | 5:36 AM
    • NEC Nine Entertainment full year results | 5:36 AM
    • ABC Adelaide Brighton first half results | 5:37 AM
    • BBG Billabong International full year results | 5:37 AM
    • SFR Sandfire Resources full year results | 5:38 AM
    • AGO Atlas Iron full year results | 5:38 AM
    • NBL Noni B full year results | 5:38 AM
    • Tasmanian state budget Tasmanian state budget | 5:39 AM
    • HIA Housing Industry Association new home sales for July | 5:39 AM
    • AUB Austbrokers Holdings full year results | 5:39 AM
    • ABS ABS Private New Capital Expenditure and Expected Expenditure data for the June quarter | 6:11 AM
    • 29
    • RBA RBA to release financial aggregates for July | 1:01 AM
    • AOFM AOFM to issue $600 million of October 21, 2017 Treasury bonds | 2:17 AM
    • VAH Virgin Australia Holdings full year results | 6:08 AM
    • TSE Transfield Services full year results | 6:08 AM
    • HVN Harvey Norman results | 6:08 AM
    • HZN Horizon Oil full year results | 6:09 AM
    • WDR Western Desert Resources full year results | 6:09 AM
    • WOW Woolworths second half sales and full year profit result | 6:10 AM
    • GXL Greencross full year results | 6:11 AM

TheBull PREMIUM article search


Don't know the company code? Click here

Featured Comment

I rate Royal Wolf on a few fronts. As mentioned, it has consistently grown earnings in challenging markets, unlike some companies that only grow strongly when there are favourable market conditions. Royal Wolf is clearly well managed.

Small-cap stock that performs in good and bad markets

Broker buys

  • ASX Code
  • Company
  • Broker
  • IREIressWilson HTM
  • RIORio TintoWilson HTM
  • CCPCredit CorpPhilip Capital
  • COECooper EnergyPhilip Capital
  • TLSTelstraMorgans CIMB
  • NABNAB LtdMorgans CIMB

Broker sells

  • ASX Code
  • Company
  • Broker
  • CGFChallengerWilson HTM
  • DLXDuluxWilson HTM
  • SMXSMS TechPhilip Capital
  • OKNOaktonPhilip Capital
  • SAISAI GlobalMorgans CIMB
  • EGPEchoMorgans CIMB

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.
  • IBCIronbark Capital Ltd, 2c, 100%15/12/14
  • CYACentury Aus Inv Ltd, 2c, 100%10/09/14
  • MHIMerchant House Intl Ltd, 0.5c, 0%20/08/14
  • WICWestoz Inv Co Ltd, 4.5c, 100%07/08/14
  • OZGOzgrowth Limited , 0.75c, 100%07/08/14
  • SGTSingapore Telecom Ltd, 8.6c, 0%01/08/14
  • CUPCountplus Limited, 3c, 100%28/07/14

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
  • GVFGlobal Value Fund Ltd14/07/14
  • TPN3P Learning Ltd16/07/14
  • DXBDimerix Bioscience Ltd28/07/14
  • BALBellamys Aus Ltd30/07/14
  • ECO8Common Ltd22/08/14


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