Precious metals - is the future back to basic?

Precious metals - is the future back to basic?

20 February 2019 from Anna Svahn
Precious metals like gold and silver have been used as money for thousands of years and although several decades have passed since President Nixon abandoned the gold standard, central banks bought 651.5 tons of gold last year, 74 percent more than the year before - more than they did since 1971 just before Nixon shock. But despite the fact that gold is perhaps the most obvious choice when we look at precious metals, it applies just as with the rest of the portfolio to find a good diversification. So, which precious metals are interesting to look at taking in the portfolio and why?

Gold has begun to find momentum since the bottom in August last year and has increased in recent months. Many investors (including signed) would call gold for the portfolio insurance, a kind of hedge against inflation and possibly falling prices for other assets. Last year, as said, central banks around the world bought more gold than they did since Nixon decided to completely deviate from the gold standard in 1971, but what do the central banks actually see in the yellow metal and should one as a private investor take back the world's central banks or not?

Central banks invest in gold for several reasons. The more well-known reasons are that gold is considered to be an inflation-proof asset and a good way to diversify its portfolio, but in a survey conducted by the World Gold Council in the second half of 2018, where 22 central banks in the world were asked, it also emerged that gold is considered to reduce the risk in the total portfolio and generate higher risk-adjusted returns and used as collateral for loans, which 71 per cent of the surveyed central banks considered to be important reasons for buying more gold.

The development in 2018 was mixed but ended, as I said, strongly, what speaks for continued momentum for gold even and which are important for investors who are interested in taking in some gold in the portfolio are mainly the following three:

• Continued increased uncertainty in the geopolitical situation and volatile markets make gold an interesting hedge for investors.
• Although the Fed has previously flagged interest rate hikes which could adversely affect the price of gold, the plans seem to have been paused due to global economic slowdown.
• Continued increase in demand for gold, for example in technology, jewellery and as an investment.

Gold on steroids and two other candidates

In addition to gold, silver, palladium and platinum are also interesting candidates for the portfolio. For anyone who believes in complete system collapse, it may be a good idea to store silver coins at home to use as a means of payment at an apocalypse (since it is easier to carry and exchange for goods than gold coins which in such cases must be shared first) but If you still have the confidence that the world may not go under, there are other, somewhat smoother ways to expose yourself to the gold's gray little sibling.

Silver, sometimes referred to as "gold on steroids", made reasons for its nickname when the price rose in December 2018, but ended in 2018 as its worst year in three years. 2019 has also not had a good start for the metal, and analysts believe that it is mainly because investors allocate from industrial metals (which silver can also be counted as) because of fear of a global economic slowdown. What could give the price of silver a positive push is a good trade agreement between China and the United States which had served as a boost for the entire global economy.

Demand for platinum, which also has several tough years behind and over the past five years almost halved in price, has declined as demand for diesel cars in Europe and China has decreased. However, in contrast to platinum, palladium has several strong years behind it. The last five years, the price of palladium has risen sharply, for the same reason that the price of platinum has declined in recent years, palladium has risen as used as a catalyst in gasoline engines.

When we look forward, the views are mixed with regard to the various precious metals. Investors have, due to the strong stock market of recent years, allocated more capital from metals to shares. With a slowdown in the global economy, however, one can imagine that, above all, silver and gold will be pushed forward when investors choose safer assets in front of shares. It therefore seems that the metals that have already been used for thousands of years, one will be demanded in the future.

@Anna Svahn

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

26/11/2022 10:50:57


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