Commodity insight: Precious metal special
Precious metals have recently returned to the spotlight. Articles about new highs are appearing in the news on a regular basis. Prices have been soaring, to say the least, but what is the underlying reason? This week we highlight the precious metals gold, silver, platinum and palladium!
Precious metals shine
Precious metals have dazzled the market with their strong price performance in 2024. Silver recently set a multi-year high and gold is trading at prices we've, well, never seen before (in USD). Rallies like these often result in confusion among investors, but for most, this rise feels pretty straightforward. A perfect storm of inflation, war and uncertainty has made metal prices shine.
The S&P GSCI Precious Metals, which is an index of precious metals price performance weighted by annual production per metal, recently set a new high since the index's inception. The trend reflects investors' flight to more ‘safe’ assets, which precious metals and especially gold are seen as.
An ancient hedge
Gold is the metal most people hold closest to their hearts. Gold has long been associated with winning and wealth, and those who have owned gold over the past few years can title themselves both winners and wealthy. The metal has attracted people's interest for thousands of years, mainly for its desirable properties such as high corrosion resistance and beautiful lustre. Thanks to its properties, gold has long been used as a currency in itself, but also as a reserve currency in times of economic hardship. Interest in the metal has not waned, with 3 644 tonnes of gold mined in 2023 according to the World Gold Council, the majority of which was used for jewellery and investment.
The escalation of conflicts in the Middle East and higher-than-expected US inflation figures have prompted investors to do what they have done many times before, flee to ‘safer’ assets. The five-year chart reflects this picture, with a strong upturn in 2024 evident.
All that glitters is not gold
Silver is often overshadowed by gold, but its price performance has also been solid. Silver is often highlighted as a 'hybrid metal', meaning that it is not just a precious metal for fine jewellery and bullion. Silver is more widely used for industrial purposes thanks to its properties as a metal. For example, silver is the metal with the highest electrical conductivity, which has attracted investors due to the AI hype. High-performance computers require a lot of electricity, which could possibly lead to an increase in demand for silver if artificial intelligence really takes off.
The five-year chart shows how silver has accelerated in 2024. Silver is now trading at the highs we saw in 2020-2021, but is still a long way from its 2011 peak of USD 49.83/OZ.
Two underperformers
Gold and silver usually outshine platinum and palladium when precious metals are discussed. This may be explained by the fact that the annual production of the two less popular metals is much lower, and that their popularity has emerged more recently in human history. Whatever the reason, the metals' price development over the past five years has not favoured their popularity.
Both palladium and platinum have underperformed gold and silver over a five-year period. The explanation lies in the metals' applications, with platinum and palladium being more widely used for industrial purposes and, in particular, emission treatment in the form of catalytic converters. The development of the economy has reduced the demand for new cars, and the growth of the electric car sector (which does not require catalytic converters) further threatens demand.
Developments over a five-year horizon clearly show the cold demand metals have experienced. Both metals have underperformed the broad precious metals index.
