Forget Gold, Invest In These Precious Metals (WITE,SLV,PALL,PLTM)

Posted: 25 Jun 2014 06:50 AM PDT

Over the last year or so, investors have left precious metals with abandon. Prices for safe-haven metals like gold have reflected a new atmosphere. The kind of hyper inflationary scenarios predicted by wave after wave of global easing programs simply hasn't come true. Meanwhile, a strengthening global economy has been met with rising equity and bond prices at the expense of precious metals.

So why invest in precious metals? Here's why:

The white metals of silver, palladium and platinum are just as much about rising industrial production and global growth as they are about hedging against inflation or providing a safe-have investment. For investors, the white metals allow can capture much of the upside in the global economy as well provide some downside protection in case the fudge really hits the fan. Investors should act quickly, though. (For related reading, see: Could Platinum Be Better Than Gold?)

Rising Demand

Overall, industrial uses account for roughly 45% of silver demand. It's used in automotive, electronic, solar and photographic applications. Both platinum and palladium are found in auto and truck catalytic converters to control emissions, as well as a variety of tech products, such as LCD monitors, hard disk drives, batteries and electrodes.

And with such a diverse range of manufacturing uses outside of the world of jewelry and bullion, demand for white metals is surging as industrial production grows. (For more, see: Make Your Precious Metal Choice Less Golden)

According to investment bank Commerzbank, China's imports of silver earmarked for industrial use have now totaled roughly 1,154 tons since the start of the year. That's nearly 16% more than it imported during the same period last year and reflects its recent improvements to its PMI reading, a key gauge of industrial production. At the same time, higher PMI readings in the United States, the Eurozone and Japan have helped buoy silver prices. Japan's solar explosion has especially contributed to its rising demand for silver.

The story is the same for platinum and palladium, which have seen global automobile manufacturing rise by roughly 5% this year. Also benefiting the duo is growing shale oil and gas exploration in the U.S. The metals are required by converters used in petrochemical facilities to process shale gas. The growth in ethane/ethylene production in the U.S. is a new market for the two metals, as are natural gas powered automobiles.

Simply put, global manufacturing growth will boost demand for the white metals and should provide solid returns to investors. As for the doomsayers, they'll always have a geopolitical event to persuade them to buy in, such as recent tensions in Iraq and Russia.

Making a Play for the White Metals

A simple way to invest in silver, platinum and palladium is through an ETF, such as the Physical White Metals Basket Shares (WITE).

Just like the uber-popular iShares Gold Trust (IAU), WITE holds physical bullion in a vault on behalf of investors. The fund is currently weighted so that each share represents a 50% interest in silver, 34% interest in platinum and 16% in palladium. Overall, WITE makes a good broad play on the white metals theme, and at 0.60% in expenses, it's relatively cheap. The only issue is that volume for the ETF is low; about 1,000 shares trade hands per day. That means investors may want to go the individual route to gain exposure to the industrial/precious metal trio.

In terms of silver, the only real game in town is the iShares Silver Trust (SLV). As with the IAU, it's physically backed, features robust trading volume and has managed to tack on nearly 10% in gains since the end of May. As for platinum and palladium, the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Platinum Shares (PPLT) are good vehicles.

Another interesting route for investors could be the miners. Rising prices for the white metals will only boost profits for the companies that extract them. The Global X Silver Miners ETF (SIL) tracks 26 different miners, including industry stalwarts like Hecla Mining Co. (HL) and Silver Wheaton Corp. (SLW). The First Trust ISE Global Platinum Index (PLTM), on the other hand, holds 19 global producers. Both funds have been hammered over the last few years, but should rebound as industrial demand grows.

The Bottom Line

As the global economy improves, precious metals prices have suffered as fewer investors see the need for a safe haven. That's huge news for investors looking to get into the white metals group. The trio of silver, platinum and palladium are driven as much by their industrial demand than their safe-haven status. Continued rising manufacturing will only strengthen their appeal.

Ramadan issue of ArabianMoney monthly newsletter focuses on ...

Posted: 26 Jun 2014 12:30 AM PDT

Posted on 26 June 2014 with 1 comment from readers

The latest edition of the ArabianMoney private-circulation newsletter is out today ahead of the start of Ramadan this weekend (subscribe now and we will send the current issue to you free). It drills down on opportunities in the precious metals sector as the gold price moves off the bottom, just as we predicted last month.

In the past month two factors have been driving the gold price higher: hints in the last Fed statement about inflation 'noise' and a willingness to tolerate it; and the geopolitics of energy playing out now in Iraq and Ukraine and what that means for inflation in the future.

Oil price hike?

Rising oil prices have been a major factor in governing world economic cycles since the 1973 Arab Oil Embargo and every major price hike has caused a recession and inflation. Armchair analysts are too quick to dismiss what is happening in Iraq as not likely to impact oil prices. It has already raised them by 10 per cent.

The damage to future oil supply growth is also being ignored as Iraq is supposed to provide 60 per cent of Opec's oil output growth over the next five years. In the Ukraine we doubt the ceasefire will hold long after the deadline tomorrow. It has already been broken by the downing of a Ukrainian helicopter by a Russian missile yesterday with nine fatalities.

Gold and silver prices have risen in tandem with these developments with gold up more than five per cent and silver more than double that amount. This is the classic inflation hedge and flight to safety. We think prices are on a roll now, with only a major fall in global stock markets likely to pause a major gold rally.

How to do it

So how do you as an individual or institution best invest in precious metals? There are many considerations and possibilities as readers of the newsletter will find out. Getting the best out of this new uptrend requires some clear thinking.

But the time to do it is most likely now. If prices fall back then a buy and hold strategy will work will if 2008-9 was a precedent. Then gold and silver dropped like a stone but rebounded strongly ahead of all other major asset classes.

Actually that is not our core forecast, it's more of an insurance policy.

Forget Gold, Invest In These Precious Metals (WITE,SLV,PALL,PLTM) | How to invest in gold

Forget <b>Gold</b>, <b>Invest</b> In These Precious Metals (WITE,SLV,PALL,PLTM) | How to invest in gold

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