by Jeff Reeves | February 29, 2012 6:30 am
Gold, gold, gold! The precious metal is all over the news these days after a 16% gain since its December low. Gold topped out at a record $1,918 in late 2011 before rolling back, but some are convinced the commodity will continue its recent run and regain the $1,900 mark — and perhaps move even higher.
Gold is indeed attractive for a host of reasons. European debt fears (to say nothing of America’s own financial woes) have made some investors less likely to hide out in government debt and more likely to hold gold amid broader economic uncertainty. Also, hard assets in general have been doing well due to inflationary fears.
But investors shouldn’t think gold is the only way to cash in on some of these broader trends. Indeed, many hard assets have been rallying strongly — and as part of diversifying your portfolio, it may be time to give some of them a look.
Here are three such metals that could glitter more than gold.
Like gold, palladium is also pricey on a per-ounce basis. These days, the metal comes in coins and bars just like gold. The downside is that, obviously, palladium doesn’t have gold’s widespread appeal, so don’t expect the same kind of fervent following by currency nuts who think precious metals will eventually stand in for paper money. However, as a valuable commodity investment, palladium hits all the right notes.
The metal opened 2010 at around $420 per ounce and ended the year at almost $800, nearly doubling. It fell back in late 2011 along with gold, but is once again in above $700 an ounce after a run of more than 20% since November 2011.
But if you think gold is volatile, palladium is even more so. The metal was “discovered” during the dot-com boom, racing up from around $100 per ounce to more than $1,000 in five years. It then flopped to around $200 as the tech bubble burst.
Palladium is used in electronics that go into everything from computers to smartphones to LCD TVs, hence its ties to broader economic and tech trends. With the world getting only more dependent on these technologies, even in cash-strapped times, baseline demand remains strong.
It may be a wild ride, but palladium is an interesting rub on the hard-asset argument. You get the benefits of gold but also a tie to broader economic trends, whereas gold has no real “use.”
How do you play palladium? Well, the ETFS Physical Palladium Shares (NYSE:PALL) is as pure a way as any. The fund is up 10% so far in 2012.
There also are a handful of primarily palladium miners, including North American Palladium (AMEX:PAL), which is up 15% so far in 2012. However, stock investors have a much greater variety of diversified miners. One is Stillwater Mining (NYSE:SWC), which has significant palladium holdings alongside a platinum mining business. SWC is up 40% or so year-to-date, significantly outperforming the market and many other hard-asset investments.
Silver has soared from under $15 in early 2008 to well over $30 currently. That’s similar to gold, which has also roughly doubled in the same time frame.
The black eye for silver, however, is that last spring the metal “crashed” from $48.70 to $32.50 in just eight trading days.
The good news: That disparity can work both ways, since during the run-up to $48.70, silver significantly outpaced the gold’s returns. If you’re a short-term trader looking for a pop, then it may be worth while diversifying your hard assets a bit beyond the gold market.
And for all you investors preparing for the apocalypse, physical silver has actual currency potential if you truly believe the dollar will become worthless. After all, how do you buy inexpensive essentials like food or clothes with a gold bar worth thousands or a gold coin worth hundreds? Silver is much more practical due to its smaller per-ounce value.
If you want to get into silver, the metal also has trust ETFs such as the iShares Silver Trust ETF (NYSE:SLV), which is up about 33% so far in 2012, and the smaller ETFS Silver Trust (NYSE:SIVR), which is up by the same amount. Like gold trusts GLD and IAU, these are pure plays on silver.
A few miners also are primarily silver-focused. One of the largest is Silver Wheaton (NYSE:SLW), which is up a staggering 40% year-to-date in 2012. Others include Pan American Silver (NASDAQ:PAAS) and Silvercorp Metals (NYSE:SVM), both of which are up about 20% this year.
Of course, if you’re looking less for an investment and more for a hedge against chaos, you can stock up on silver bars and coins to store beside your gold heap. Just remember that you need roughly 50 times the storage capacity to stockpile the same amount of silver.
Since 2005, platinum prices have roughly doubled compared with gains of about 20% for the broader stock market. Not bad… though gold bugs will be quick to point out gold has seen a four-fold rise in the same period of time.
So gold is better, right? Maybe not.
You see, gold and platinum have a lot in common. They’re both precious metals with a high per-ounce value. Right now, platinum is trading at about the same levels as gold — a little north of $1,700.
But historically, platinum trades for significantly more. Thus, the current parity may signal a value buy due to this factor alone.
The average ratio of platinum to gold prices has been largely between 1 and 1.5 for the past few decades, with a rough average of around 1.25 to 1.35. That means platinum has typically sold for around 25% to 35% more than gold. There are regular fluctuations, of course, but any large deviation from this benchmark tends to result in a sharp correction back to the norm soon afterward (see charts).
So, if you think gold is going to rise, consider platinum, too. If the historic ratio corrects itself, platinum’s gains could be significantly higher than gold’s. In fact, if you believe in this 1.25 to 1.50 ratio, even if gold remains flat, platinum has a 25% to 50% upside from here!
(Read a more in-depth analysis of platinum-to-gold ratios here)
So how do you invest? Well, as with gold and silver, platinum also has ETFs like the ETFS Physical Platinum Shares (NYSEARCA:PPLT) that move in lockstep with the metal. It’s up over 20% in 2012. There are few pure platinum miners, but they tend to be illiquid and trade OTC, such as the South African Anglo Platinum Limited (PINK:AGPPY). They can have attractive returns — Anglo Platinum is also up about 20% year-to-date. But buyer beware: These smaller stocks can really be volatile.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.
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