INVESTORS often think about investing in gold, silver and other precious metals only in times of uncertainty, but these assets can be solid investment choices regardless of economic conditions.
Precious metals are rare in nature and have strong, intrinsic value, as opposed to the relative value of paper currency. The metals are thus perceived as a hedge against inflation or financial downturns.
Experts say that demand for metals is expected to rise substantially, in line with the ongoing development of emerging markets and their investment in infrastructure.
"The expected growth in consumption of metals should lead to strong returns for investors," said asset-management group Schroders.
It added that supply constraints in certain metals, due to factors such as under-investment in exploration and research and development, would drive up long-term pricing trends.
That said, precious metals can be highly volatile investment tools.
Their prices can swing wildly, depending on many factors, such as the rise or fall of the US dollar, bond yields, inflation and global economic conditions.
Financial experts recommend that precious metals should typically make up a small proportion of a portfolio - not more than 10 per cent.
Here's a look at key precious metals and the market outlook for them.
Gold
Highly valued since ancient times, gold is known for its safe-haven status and has always been the most popular choice among investors of precious metals.
While it is mainly used as a base for jewellery and a form of currency, the shiny and malleable metal also has industrial applications. For example, it is used in electronics because it is resistant to corrosion and a good conductor of both heat and electricity.
According to the World Gold Council (WGC), the average price of gold in the second quarter was US$1,196.74 (S$1,624.21) per ounce, 30 per cent above that of the second quarter of last year.
In value terms, the total identifiable demand for gold in the second quarter saw a 77 per cent rise to US$40.4 billion, a record quarterly high.
WGC said in a report this month that it expects demand for gold to remain strong this year, with India and China continuing to provide the main thrust for demand growth, particularly for gold jewellery.
"Economic uncertainties and the ongoing search for less volatile and more diversified investments such as gold, are likely to underpin demand for investment gold in the immediate future," it said.
Silver
Another ductile and malleable metal, silver is not just a store of value used in jewellery and silverware, but is also used by the photography industry to make silver-based film.
It also has industrial uses in electronics, especially in the making of circuits, contacts and chips. These are in high demand as gadgets such as mobile phones and MP3 players play an ever bigger role in modern lifestyles, thus pushing up the price of silver.
Tracking the strong performance of gold, silver prices have risen by as much as 12 per cent this year.
"Although silver shows greater volatility in daily price movements, it has been steadily outperforming, recording continuous gains and its longest rally since 1979," said Mr Stephen Land, a precious-metals investment fund manager at Franklin Templeton Investments.
Platinum and palladium
More economically sensitive than gold, platinum and palladium look set to remain in high demand - it is estimated that one fifth of everything the world uses either contains or requires platinum.
Both metals are widely used in catalytic converters that are part of car exhaust systems. The demand for such devices has increased over the years as governments worldwide strive to implement tougher pollution-emission standards.
Mr Land said platinum and palladium prices ran up early in the year on the back of improved automotive demand and heightened investor interest around the launch of the platinum and palladium physical exchange-traded funds in the United States market.
The long-term outlook for the two metals remains positive, according to commodities-market research and asset-management firm CPM Group.
It cited compelling fundamentals resulting from constrained supply and rising fabrication demand.
These factors are expected to increase investor interest in the metals, adding to the upward trend in prices.
Still, investors who lack experience in precious metals should consider investing in them through mutual funds.
Mutual funds are typically one of the safest ways of diversifying a portfolio and they offer investors a variety of securities to invest in.
For example, the Schroder Alternative Solutions Gold and Metals Fund invests in futures and other commodity-linked derivative instruments, while the Franklin Gold and Precious Metals Fund focuses on the equities of companies that mine precious metals.
Since these funds are professionally managed, investors can enjoy peace of mind amid an uncertain market.
reicow@sph.com.sg
http://www.asiaone.com/Business/News/Story/A1Story20100830-234557.html
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