If investors are looking for value in commodities they need to look beyond gold, industry experts have told Money Management
.
Gold has long been seen as a ‘safe haven’ in times of economic uncertainty, but it is not performing well, with gold funds lingering around the bottom of fund tables. Its appeal lies largely in retaining value at a time of negative real interest rates, but when gold funds are performing badly and inflation is dropping, the case for holding gold is weaker.
“2013 was a challenging year for gold,” says Catherine Raw, co-manager of the BlackRock Mining Trust. She puts this down to the exit of investors that had been playing gold as a way of hedging against the negative impact of quantitative easing on the monetary system. “As that has unwound and tapering has come through, what you’ve seen is a rotation out of gold and silver and into more financial markets such as US and European equities, and gold and silver have suffered as an effect of that rotation,” she says.
Ms Raw highlights potential opportunities in palladium, whose price was also affected by the conflict in Russia and Ukraine. Russia is the leading producer of the metal, used in catalytic converters and jewellery, providing 42 per cent of the world’s supply. Meanewhile South Africa, which produces 37 per cent, is threatened by an ongoing mining strike in the region. According to iShares, its Physical Palladium ETC has returns of 7.63 per cent in the year to 27 March against the benchmark, London Palladium PM Fix, of 6.98 per cent.
It isalso important to consider the location of the mines. Some regions are subject to higher taxation or the seizure of assets, which means mines that operate in Australia are more stable than those in some countries in Africa.
