Investments  

‘Painful period’ for sector could be over

This article is part of
Precious Metals - September 2014

When investors think of precious metals it is usually gold that springs to mind, whether it is direct exposure to the commodity or indirect exposure through mining stocks.

However, there are other precious metals that investors can be exposed to, which used to more commonly form part of a long-term investment portfolio.

Silver, palladium and platinum are perhaps the most well-known of the precious metals.

This year has been difficult for gold, so have investors abandoned other precious metals? How have the prices of palladium, platinum and silver fared in 2014?

It is fair to say that precious metal prices have been under pressure this year as the dollar strengthens.

The average monthly price of silver had gained some momentum this year to reach $20.92 (£12.81) per ounce in July but that fell back to $19.80 per ounce in August, according to data from Kitco.com.

Meanwhile, platinum prices have climbed during the year to a monthly average of $1,447.85 in August, from a low of $1,410.50 per ounce in February, peaking at $1,492.65 in July.

Following a particularly poor performance in February, when the average monthly price of palladium dipped to $128.55 per ounce, the precious metal has since recovered to hit $875.80 per ounce in August, data from Kitco.com shows.

Chris Beauchamp, market analyst at IG Group, sees precious metals remaining under pressure in the current global environment.

He cautions: “Even in Asia, where demand is usually quite strong, the appeal of precious metals is dimming.

“The logic was compelling when the price was on an ever-rising trajectory, but ongoing gyrations mean the asset is no longer the ‘sure thing’ of times past.”

He adds: “Even palladium, which was given a real boost by the escalation in Ukraine, has seen its sharpest drop in more than a year.”

According to IG Group, the four main palladium mining regions are Montana (USA), Ontario (Canada), Norilsk (Russia) and Transvaal (South Africa), with 80 per cent of the global supply of palladium coming from Russia and South Africa.

The price of this metal has been supported throughout the year by a lack of supply, with a number of strikes at mines in South Africa affecting production.

Neil Gregson, portfolio manager of the JPM Natural Resources fund at JPMorgan, calls it a “painful period” for the natural resources industry but believes there are reasons for investors to go back into the asset class.

He elaborates: “Given the cyclical attributes of the natural resources sector, there is a strong case for looking at where we’ve been to understand where we are going. A persistent three-year bear market for the sector has had a lasting effect on the supply side.

“Industry exploration expenditure has been slashed and Greenfield projects put on hold. New management teams at the major mining companies will remain wary of a shareholder reaction should they revert back to a strategy of ‘growth for growth’s sake’. This all points towards a stuttering supply at a time when demand is rebounding as the global economic recovery becomes more fully entrenched.”