This Features Article is an introduction to the precious metals, their unique physical characteristics and their inflation protecting qualities over the long-term. We consider gold to be the fifth asset class sitting alongside equities, fixed income government bonds, inflation-linked government bonds and bank deposits. Gold stands alone as the only asset that survives wars, non-democratic regimes across the world and currency debasements.
GillenMarkets is hosting a free-to-attend Webinar at 12.30pm on Wednesday, 30th October next titled ‘An Introduction to the Precious Metals’. Those participating in the webinar will have the opportunity to get a complimentary copy of our recent publication with the same title.
In that publication, we will deal with the physical characteristics that make gold, silver and platinum so unique, the drivers of demand for each of the precious metals, how one might go about valuing them, whether they are expensive or cheap today relative to history and the easiest ways to gain exposure to them. Click the link at the bottom of this article, if you wish to attend the webinar.
The three principle precious metals include gold, silver and platinum. Gold has been in a bull (rising) market since early 2016 and has dragged silver along with it. The platinum price, however, remains in the doldrums dogged by investor concerns that its use in catalytic convertors in combustion engines will be a thing of the past when electric vehicles dominate.
Gold is money and has been trusted as money, and a sound store of value, over the past five thousand years to such an extent that today central banks globally consider it a worthy reserve asset that they are willing to hold, albeit to a much smaller extent that US treasuries (or US dollars). Gold trades independently and outside traditional banking systems. It is an independent asset and not a liability. In contrast, government bonds and bank deposits only have value if the respective governments and banks are solvent. Government bonds and bank deposits are, in effect, I.O.U.s.
Without going into too much detail here, central banks’ demand for gold has been the driving force behind this particular gold bull market. The chart below shows central banks’ demand for gold since 1960. Since 2010, central banks globally, and particularly those in developing and non-democratic countries of the world, have been net buyers of gold, something that had not occurred in the previous 1960 to 2009 period.
In contrast, demand for silver is primarily for its industrial applications and as jewellery with investment demand third in the pecking order. Nonetheless, when gold is in a bull market silver nearly always catches the tailwind because, traditionally, silver itself was considered money.
Demand for platinum is primarily for its use in industrial applications with jewellery and investment demand making up a small proportion of overall demand. Due to concerns over the sustainability of demand for platinum for its use in combustion engines (40% of overall demand), the platinum price continues to languish and has not even kept up with inflation as measured since 1969. Whether we see this as an opportunity is discussed in the upcoming webinar and in our research note that will be available to those attending.
