With the SPDR Gold Shares (NYSEArca: GLD) down 25.7% this year and the iShares Silver Trust (NYSEArca: SLV) showing a far worse loss of 34.4%, it probably is not surprising enthusiasm for commodities is lacking heading into 2014.
Money managers are concerned about slowing global growth and demand from China, often the 800-pound gorilla in any number of commodities rooms. While there is evidence that Chinese gold demand has jumped this year, fears regarding slowing growth in the world’s second-largest economy have plagued some base metals this year, including copper. The iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC) has dipped 14.3%. [China Weighs on Copper ETN]
“Participants at the Reuters Global Investment Outlook Summit were downbeat on gold, expecting prices to extend losses or at best stagnate since inflation is an issue only for the long term,” reports Eric Onstad for Reuters.
Gold’s 12-year bull market will likely end this year as fundamental factors, such as the European sovereign debt crisis, quantitative easing by the Federal reserve and a weak U.S. dollar, that were expected to boost the yellow metal failed to do so. Two ETFs backed by holdings of physical gold are among the 10 worst funds in terms of 2013 outflows. [Banks See More Pain for Gold ETFs]
Of the major U.S.-listed ETFs that are backed by holdings of physical precious metals, only the ETFS Physical Palladium Shares (NYSEArca: PALL) is positive on the year and it is the platinum group metals that money managers are somewhat positive on heading into next year.
“Fund managers, however, are upbeat about another segment of precious metals – platinum and palladium – due to worries about supply. Investors are concerned about output in South Africa, which accounts for about three quarters of global production of platinum, after a wave of strike action,” according to Reuters.
South Africa is the world’s largest platinum producer and second-largest palladium producer behind Russia. Russia does not release palladium production data and several years, traders have speculated the country’s stockpiles of the white metal, used to produce catalytic converters in American and Chinese automobiles, are dwindling.
The palladium market is expected to experience a large deficit this year, with demand outpacing supply by at last 850,000 ounces, or 10% of global supply. On the supply side, palladium mine supply has been declining by an annual rate of 2% since 2007. [Palladium ETF Could Shine]
ETFS Physical Palladium Shares
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.