Over the last year or so, investors have left precious metals with abandon. Prices for safe-haven metals like gold have reflected a new atmosphere. The kind of hyper inflationary scenarios predicted by wave after wave of global easing programs simply hasn’t come true. Meanwhile, a strengthening global economy has been met with rising equity and bond prices at the expense of precious metals.
So why invest in precious metals? Here's why:
The white metals of silver, palladium and platinum are just as much about rising industrial production and global growth as they are about hedging against inflation or providing a safe-have investment. For investors, the white metals allow can capture much of the upside in the global economy as well provide some downside protection in case the fudge really hits the fan. Investors should act quickly, though. (For related reading, see: Could Platinum Be Better Than Gold?)
Overall, industrial uses account for roughly 45% of silver demand. It's used in automotive, electronic, solar and photographic applications. Both platinum and palladium are found in auto and truck catalytic converters to control emissions, as well as a variety of tech products, such as LCD monitors, hard disk drives, batteries and electrodes.
And with such a diverse range of manufacturing uses outside of the world of jewelry and bullion, demand for white metals is surging as industrial production grows. (For more, see: Make Your Precious Metal Choice Less Golden)
According to investment bank Commerzbank, China’s imports of silver earmarked for industrial use have now totaled roughly 1,154 tons since the start of the year. That’s nearly 16% more than it imported during the same period last year and reflects its recent improvements to its PMI reading, a key gauge of industrial production. At the same time, higher PMI readings in the United States, the Eurozone and Japan have helped buoy silver prices. Japan’s solar explosion has especially contributed to its rising demand for silver.
The story is the same for platinum and palladium, which have seen global automobile manufacturing rise by roughly 5% this year. Also benefiting the duo is growing shale oil and gas exploration in the U.S. The metals are required by converters used in petrochemical facilities to process shale gas. The growth in ethane/ethylene production in the U.S. is a new market for the two metals, as are natural gas powered automobiles.
Simply put, global manufacturing growth will boost demand for the white metals and should provide solid returns to investors. As for the doomsayers, they'll always have a geopolitical event to persuade them to buy in, such as recent tensions in Iraq and Russia.
Making a Play for the White Metals
Just like the uber-popular iShares Gold Trust (IAU), WITE holds physical bullion in a vault on behalf of investors. The fund is currently weighted so that each share represents a 50% interest in silver, 34% interest in platinum and 16% in palladium. Overall, WITE makes a good broad play on the white metals theme, and at 0.60% in expenses, it’s relatively cheap. The only issue is that volume for the ETF is low; about 1,000 shares trade hands per day. That means investors may want to go the individual route to gain exposure to the industrial/precious metal trio.
In terms of silver, the only real game in town is the iShares Silver Trust (SLV). As with the IAU, it’s physically backed, features robust trading volume and has managed to tack on nearly 10% in gains since the end of May. As for platinum and palladium, the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Platinum Shares (PPLT) are good vehicles.
Another interesting route for investors could be the miners. Rising prices for the white metals will only boost profits for the companies that extract them. The Global X Silver Miners ETF (SIL) tracks 26 different miners, including industry stalwarts like Hecla Mining Co. (HL) and Silver Wheaton Corp. (SLW). The First Trust ISE Global Platinum Index (PLTM), on the other hand, holds 19 global producers. Both funds have been hammered over the last few years, but should rebound as industrial demand grows.
The Bottom Line
As the global economy improves, precious metals prices have suffered as fewer investors see the need for a safe haven. That’s huge news for investors looking to get into the white metals group. The trio of silver, platinum and palladium are driven as much by their industrial demand than their safe-haven status. Continued rising manufacturing will only strengthen their appeal.