InvestmentsMar 19 2012

A precious world beyond gold

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While gold has tended to dominate headlines as it passed $1,500 (£959) per ounce and headed towards $2,000, some of its rival precious metals have been overlooked, partly because of their lower prices and partly because of their volatile nature.

Silver is the obvious starting point when expanding into precious metals. It is sometimes known as ‘poor man’s gold’ because of its high correlation with its gold counterpart.

However, silver trades at a much lower price than gold, currently sitting just above $33 an ounce compared with gold’s $1677.5 per ounce, which makes it more easily traded. However, it also means the price changes can be extreme.

Last year, silver peaked at $48.70 per ounce on April 28 before dropping down to a low of $28.16 on September 26 and then jumping again to its current price.

Silver and other precious metals including platinum and palladium have different demand drivers to gold, where roughly 75-80 per cent of demand is driven by jewellery or investment, while for silver, platinum and palladium industry is a much bigger player. Catherine Raw, co-manager of the BGF World Mining fund, notes: “That means you have a slightly different dynamic – you have a slightly higher correlation to the global economy. A good example would be the platinum industry, when you had the US and European car manufacturers damaged in the financial crisis, which hurt platinum prices.”

However, in terms of silver, one of the biggest surprises recently has been the industrial demand for the metal to be used in photovoltaic cells for the solar panel industry.

She adds: “You can’t just say I’ll buy silver because it is correlated to gold. There are other things that impact it. In the early 2000s, the negative was the move from film photography to digital photography, as silver used to be in film quite a lot and now isn’t needed in digital photography.

“So we saw huge inventories build up between 2001 and 2004 but they’ve now been worked through over time and we’re in the position where we have new sources for industrial demand.”

Meanwhile platinum and palladium have also seen some significant price changes, with the former dropping as low as $844 per ounce in November 2008 as the financial crisis hit in the wake of Lehman’s collapse from a peak of $2,050 per ounce in May 2008.

It is now steadily increasing and currently sits at $1,627 per ounce, while palladium hit a low of $192 in October 2008 before hitting a peak of $823 in February 2011 and then falling back to its current level of $678.