Precious metals and their exchange traded notes (ETNs) have seen some hard times these past months with platinum being the hardest hit.
Investor concern over the effects of global economic downturn cut demand for platinum used in jewelry and auto catalysts, writes Jae Hur for Bloomberg.
Platinum dropped to a one-week low with immediate-delivery platinum losing as much as 3% to $793.50 an ounce. October-delivery platinum fell 7.3%, closing at $799 an ounce.
Since platinum futures in New York reached historic high of $2,286 an ounce in March, more than double gold’s historic high of $1,003 an ounce, platinum has plummeted 64% while gold has dropped 28%, according to Moming Zhou for MarketWatch.
Platinum contracts for January delivery closed at $827.10 Monday while gold for December delivery ended at $726.80 an ounce.
Last year, more than 60% of all platinum consumed was used by auto industry. This year, the estimated growth rate of global car sales will slow to 1%, lower than previous forecast of 1.9% made back in May. With projected weakening production, slower sales and increasing consumer preference for smaller vehicles, which means smaller auto catalysts, platinum may see the demand drop continue.
iPath DJ AIG Platinum TR Sub-Idx ETN (PGM), down 59.2% since its July 8 inception and could slide even futher if the slowdown persists.
Even if precious metals have taken a beating, that does not mean an investor should stray away from other metals such as gold.
Nick Barisheff writes about six biggest gold myths from his perspective:
- Gold is a bad investment. Actually, holding between 7.1-15.7% in precious metal bullions may reduce portfolio volatility and improve returns.
- Gold is not a good inflation hedge. In reality, gold has maintained its purchasing power and increased it against all major currencies. This is true as long as central banks keep increasing money supply more than their country’s GDP growth.
- Gold does not pay dividends or interest. Gold’s capital appreciation is really many times greater than current interest yields, while not subject to risks that interest-bearing investments are subject to.
- Gold is an archaic relic. Gold is still trading as an alternative currency.
- Mining stocks are better investments than bullion. Mining stocks are considered more volatile and risky compared to the bullion. During market declines, mining stocks follow broad equity markets downwards even when metal prices are rising.
More prudent investors will ignore the myths so as to grasp the opportunity to add an asset class that will diversify a portoflio, protect against inflation and perhaps provide better returns than traditional stock and bond assets.
There has been a lot of investor interest in gold as a hedge against volatility these days. We continue to use trend lines to guage when we’re in an ETF and when we’re out. Right now, the trend is not there for gold, as it’s well below both the 50-day and 200-day moving averages.