Investors have been flocking to precious metals to protect from looming inflation and a weak outlook for the U.S. dollar. The trend has turned investments related to gold, silver and other precious metals into some of the hottest plays of the past year.
The demand for "safe-haven" metals investments continues pushing prices to new highs:
- Gold is up 5% so far this year after a 30% rise in 2010, and hit a record high of $1,476.21 an ounce Monday.
- Silver has climbed about 32% this year, after an 83% surge in 2010, and hit a 31-year high this week.
- Platinum is up 2.8% this year following a 20% jump last year.
- And palladium is holding steady, up 1.8% this year after a staggering 96% leap in 2010.
While gold was the popular topic of 2010, silver has been the star this year, getting more investor interest as a cheaper alternative to the yellow metal.
"People are quick to take profit when gold reaches a record," Matthew Zeman, a strategist at Kingsview Financial, told Bloomberg News. "The silver market is the one everyone is in love with and afraid of missing the boat. People fully expect silver to get to $50."
Besides investors seeking inflation hedges and speculators pushing prices higher, there is industrial demand for these metals that supports continued price jumps.
Silver is used in thousands of industrial processes and demand will pick up as the global economic recovery continues. The Silver Institute reported Monday that industrial use of silver will increase 36% by 2015 from 2010.
Palladium is a key material for catalytic converters. A global auto market recovery, driven by increased consumer demand in emerging markets like China and India, paired with supply constraints will keep palladium prices on the rise.
While some analysts expect a pullback in precious metals, they're saying it's a temporary one that doesn't change their bullish long-term outlook.
But many investors still worry they missed the precious metals rally and are now too late to get in on the hefty profits. They worry a correction phase is near, signaling a bad time to enter the metals market.
Others think inflationary concerns are overstated and the risk-aversion attraction of precious metals – especially gold – will lose its luster.
"Anything that takes away the risk premium is going to weigh on gold," said Kingsview's Zeman.
This brings us to next week's Money Morning "Question of the Week": Are you bullish or bearish on precious metals? Are you investing in gold, silver, or any precious metals? What's your favorite way to play – physical, ETFs, mining companies? If you are steering clear of the metals and mining sector, what's your reasoning?
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
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Question of the Week Feature