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Commodity - Precious Metals



Gold is one of the most commonly recognized precious metals and has been used as a means of trade for hundreds of years. The appeal with this precious metal began even before the times of the ancient Egyptians where it was valued as a decorative metal and a signal of wealth. The properties of gold meant it could be molded and shaped easily which evolved its use into the making of jewelry and eventually led to the development of some of the first ever coins. This currency characteristic was sustained until the end of the Bretton Woods agreement in the early nineteen seventies when the US dollar was pinned to the price of gold to make sure the central banks were not able to print money at an unmeasured rate. This resulted in the devalued purchasing power of money. The insufficiency of gold on the planet against the ever expanding amounts of currencies as a result of monetary stimulus is one of the prime reasons why gold remains to be so valued in this modern day.

As an essential risk management tool, gold is generally used to help build a robust base for a diverse portfolio. Despite banks no longer pinning their currencies on gold, they still hold an estimated 5-10% of their overseas currency reserves in gold. This is a common understanding amongst investors to reduce general risk and increase the long term revenues for retail investors and banks equally. The variation that gold can offer to a portfolio is outlined through a quote by Alan Greenspan, "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation." When the markets are unstable or irregular inflation occurs, investors will often turn to gold to protect themselves from risk.

In the current economic climate and with gold bullion going through regeneration, many tradable asset classes still react positively to many of the underlying economic principles at large today. A product that can not only reduce risk in a portfolio but can also increase long term gains, it comes as no surprise that demand for gold worldwide continues to increase. To develop on that idea, gold is also subject to seasonal demand, so the seasons for Indian weddings, Diwali and Christmas present strong lengthy trends that are worth taking note of.

PGM (Platinum Group Metals)


The metals we offer as part of PGM's are platinum itself and palladium. It comes as a surprise to most that it is not only jewelers and investors that purchase PGM's. In fact the majority of demand comes from the automotive industry where the two metals are vital components used in catalytic converters. For those of us that are not familiar with catalytic converters, they convert toxic exhaust emissions into nontoxic substances and with the current focus on looking after the environment this is not likely to change in the immediate future.

At the beginning of the millennium the automotive industry accounted for 72% of all global palladium demand. During this period there were problems with supply from the largest producer (Russia) and because of this prices soared from $450 to $1100 in the space of 1 year. The hugely competitive automotive industry now had an incentive to switch from palladium to platinum in order to keep production costs low. Not long after this switch to lower costing platinum, the prices of palladium crashed to below $200 per ounce.

In the event of any political tensions or other events which may hinder supplies from Russia, it is anticipated the same move could be repeated with the aggressive changes in palladium prices. The prices of platinum have doubled in recent years and there is the belief amongst certain market analysts that these higher prices may motivate the car industry to revert back to using palladium.

Although used widely as an industrial metal there are no questions that PGM's are still a precious metal. It can be used by investors as a store of value and also as a hedge against the same financial uncertainties that gold and silver protect against. This diversification and the emission restrictions placed on nations as a result of the Kyoto agreement, investors should look to hold some platinum, palladium or both as part of a diversified metals portfolio.



Silver is not only classified as a precious metal but is also used as an industrial metal and a cheaper more volatile substitute to gold. There are some similarities between the two, in that they both stem from the same fundamentals. For example, increased inflation, weakening of the US dollar and volatile markets will all create a demand for silver. Investing in silver is becoming a more attractive option today than gold, largely due to the variance of price comparison which is also known as the gold-silver ratio. These ratios are closely watched and when they move out of harmony with each other you will often find more purchases of the silver because most investors believe that the gold-silver ratio will often revert back to "normal".

The silver demand from photography has started to decrease in recent years as the transition to digital photography is in full swing. Ironically though, where silver use in photography has dropped the use of silver in electronics is widely used in electronic devices and no doubt will be used in the manufacturing of the modern cameras.

As mentioned earlier, the demand for silver changes through the seasons. This is particularly noticeable around the Christmas period in the west where the jewelry market has a stronger affiliation to silver than gold. In India where previously the gift for newly wedded couples was almost always gold, we are now seeing more and more silver jewelry purchase during the India wedding seasons. This trend is set to increase further in coming years.

Rare Earth Metals

Rare Metals

Despite their names many of these REE's are actually fairly common. As an example, cerium is the 25th most common element in the earth's crust and about as abundant as copper. The rarest of the metals that earns its name as a "rare earth metal" is promethium.

Uses of the metals include a mixed array of applications, such a nuclear batteries, highly refractive glass, magnets, enamels and lasers.

Over the past two decades China has become the leader as the largest producer of these REE's. The main difference between industrial and precious metals compared to the rare earth metals is that they are not traded on exchanges. Alternatively they are traded on private markets, and because of this they may be subject to illiquidity and volatility.

Read More: Commodities Energies