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With rising rates, gold takes a backseat to other precious metals

James Malthus, Macro Analyst

Precious metals are a diverse group

In the precious metals space, investment options include gold (GLD), silver (SLV), platinum (PPLT), and palladium (PALL). All four are levered to changes in monetary policy and interest rates, but the latter three also have industrial uses that are a significant driver of price action. Industrial uses are in turn driven by global growth prospects, as manufacturing processes that require alloys and catalysts ramp up in good times and slow down in bad times.

As the global economy continues to recover, most recently with Europe emerging from recession, industrial uses of precious metals have played a bigger role in performance. Investors interested in precious metals exposure should consider this when choosing among the different options.


Supply factors are more important to other precious metals besides gold

Other precious metals are often consumed in industrial processes, and yearly quantity supplied can be outstripped by the quantity demanded. When shortages occur, like any other commodity, precious metals prices can soar. This factor has led to palladium’s relative outperformance this year against the other metals.

Palladium is used in catalytic converters for cars made in China, whose car ownership continues to rise with the growth of the economy. This is occurring as the total quantity supplied of the metal’s ore contracts.

If you’re considering investing in precious metals, be prepared for volatility

The global nature of commodity supply and demand leads to many factors driving prices, and therefore a high level of price volatility. Prices will continue to be driven by changes in interest rates and growth rates across the world, and with recent trends toward higher rates and economic growth, it makes sense to favor the other precious metals over gold.

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