In Gold's Shadow: How Other Metals Fit Into Portfolios
Over the past few weeks, few types of investments have shone as bright as gold. Fueled by a wobbling stock market and concerns over the European debt crisis, gold prices have eclipsed
Still, there are plenty of things that could derail the yellow metal's blistering rally. Gold, which thrives when investors are fearful, tends to stall or sink when markets are strong or when crises settle down. Gold, however, is hardly the only precious metal out there. With that in mind, here's a guide to how three other metals -- platinum, palladium, and silver -- fit into investors' portfolios.
Platinum and palladium.
Even as gold prices surged this month, platinum and palladium have struggled to find their footing. That's because more so than gold, these two "white metals" have a number of industrial applications. Platinum and palladium are particularly common in the automotive industry, where they are used to make catalytic converters. In other words, when the stock market dips -- particularly when the fall affects consumers' demand for cars -- platinum and palladium will often lose out.
As a result, prices on the two metals tanked when the combination of the
Despite these differences, platinum, palladium, and gold will often all move in the same direction by virtue of all being precious metals. All three, for instance, have seen sharp gains since late 2008. Year to date, spot prices on platinum have gained 7 percent and those on palladium have tacked on 18 percent. Gold, by comparison, is up 11 percent. Still, experts say that the fact that the white metals can diverge from gold during periods like those the market experienced this month is a reason for gold investors to diversify into platinum and palladium, and vice versa.
Like the other precious metals, silver has had a rather impressive streak;
When silver and gold diverge, the difference often signals investors' views toward the economy.
"When they think the economy is going to do well, they'll buy silver and sell gold," says Pawlicki. "When they think the economy will do poorly or there's a need for a safe haven, they'll buy gold and sell silver." That's because gold is still investors' favorite among the precious metals when it comes to hedging against crises. "[Silver is] more of a bridesmaid than the bride," says Jheon. "So there is some correlation in terms of diversification and inflation ... and currency [hedging], but it's not as much of a safe-haven asset as gold is."
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