Did You Miss The Gold Rush?

By Douglas Rice | November 24, 2009 AAA

In a flight to safety during the market and economic downturn, gold was a far better investment than stocks and it's still flying high. Gold is seen by many as a safe haven and the best play for rising inflation and a falling dollar. But gold is mostly a shiny object with only a small portion of it going toward industrial applications. In fact, most of it goes to jewelry and bullion. So while prices may be high, demand can be fleeting.

Investing In Gold
One way to view the rise in gold is through comparison to other precious metals. Using ETFs over three different time periods, gold has clearly been the favorite. While gold, based on the SPDR Gold Trust ETF (NYSE:GLD) is up over 150% over the last five years and almost 50% in the last two years, the iShares silver ETF (NYSE:SLV), that has only been available since the middle of 2006, is up only up 30% over the last two years, and a platinum ETF, traded in London, just 10% over the last two years.

Gold has risen longer and higher than other precious metals. Over long periods of time gold and silver have tracked each other closely with a high correlation. However, in the recent period, this correlation has been broken with gold bolting past silver and other precious metals. (Gold is a very useful investment during periods of instability and high inflation. Learn Why Gold Matters.)

While uncertain economic times and dollar declines provide solid reasoning for gold's run up, another reason for it is the popularity with average investors. The marketing of gold has been significant over the past few years with everything from infomercials touting the benefits of owning gold, to opportunities to turn your gold jewelry into cash. If there was as much advertizing and sales in the platinum market, its price would be up too.

Experienced commodity traders may be familiar with some of the lesser know precious metals, but everyone is familiar with gold. The average investor sees its price rising, think it's safe and want to get in. And now that gold ETFs have become popular, main street investors can get in on the action. (Find some golden opportunities by investing in gold commodities or futures contracts in The Midas Touch For Gold Investors.)

Gold has risen so far, it's hard not to see it as bubbly and in need of a pull back. If you feel that way, and you missed the big gold run up, your next question might be, is there a buying opportunity in some of these other precious metals?

All That Glitters Isn't Gold
Silver hasn't make the run gold has, yet everyone knows about silver. It's as easy to buy and sell as gold. It would provide a similar inflation hedge to gold and one might think because silver hasn't run up as fast, there is more room to run. Silver is currently priced at roughly $18/oz. with a recent high of $21.34/oz.

There was a major speculative move in silver in the early 1980s when the Hunt Brothers manipulated the market and moved the price to over $50.00/oz. But that bubble popped, with a one-day fall of 50%. (Find out how the largest speculative attempt to corner the market went awry in Silver Thursday: How Two Wealthy Traders Cornered The Market.)

That aside, silver is often more volatile than gold, due to its more industrial applications, and shouldn't be thought of as safer just because the price is lower.

Platinum is nowhere near its all time high of over $2200/oz. in March 2008. The main reason for the spike was supply disruptions in South African mines. It's currently well off that price at just over $1400/oz. Platinum is far more rare than gold, and could provide a sharp upside if supply were curtailed.

There's also the fact that it's harder to buy platinum than gold or silver. One option is the ETNs, exchange-traded notes, that are offered by iPath (NYSE:PGM). Note that this ETN doesn't actually hold platinum. They rely on future contracts to track the price.

Palladium is probably unknown to most investors. It's similar to platinum, although currently much cheaper. Palladium's history involves a run in 2000 where the supply was disrupted in Russia which drove the price to an all time high of $1100/oz. But it's at more earthly level of $370/oz. right now. Palladium is supposed to be available to U.S. investor through a new ETF, although it hasn't been finalized yet. (Find out how to get started on your treasure hunt in A Beginner's Guide To Precious Metals.)

The Bottom Line
Has gold run its course? Well, it's certainly looking bubble-ish at this point. But bubbles can go on for a long time and none of the underlying fundamentals, the falling dollar or threat of inflation or uncertain markets, seem to be going away anytime soon. However, if all time highs give you nose bleeds, consider other precious metals as an option. They certainly could correct sharply and they are not for the faint of heart. But these other precious metals may provide an option if you think you missed the big move in gold.

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