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Our precious metals holdings had their best month of 2014, delivering an average return of 3.7% compared to a loss of 1.6% for the S&P 500.
Gold prices rose 3.1% for the month, as prices surged to their highest levels since October after Moody’s downgraded Japan’s credit rating. Although this safe haven buying spurred the rally, tumultuous currency markets also propped up gold prices. This unrest along with Japan’s turmoil also boosted silver prices, which rose a healthy 4.3% over the last 30 days.
Although both gold and silver had an above-average performance, palladium took the cake, as prices rose 5.8% over the last month. However, the reasons for the appreciation were slightly different.
Though all precious metals were boosted by news out of Japan and roiled currency markets, palladium is unique in that it’s tied heavily to the automobile industry. With strong October readings for global auto sales, tumbling oil prices (which should further stimulate demand for automobiles), and falling palladium production in South Africa, palladium fell on the right side of a supply-and-demand perfect storm. Lastly, platinum had an above-average month, as prices rose 1.5%.
Overall, this was a great month to be a precious metals investor. Although there could be some weakness on the horizon if the Federal Reserve continues with its plan to raise interest rates, the long-term picture is still intact.
We’ll continue to monitor developments in the precious metals market, and we’ll alert you if anything pressing comes to our attention.
Investors are always searching for ways to stay a step ahead of the market. One way people attempt to do this is by tracking what the “smart money” is doing, and the bond market is usually a good place to start. Unlike the stock market where everyone and their cousin has a brokerage account, bond trading is almost exclusively left to the pros.
Looking to the debt markets, we can see a growing divergence between low-risk Treasuries and high-yield bonds, which have a similar risk profile to equities and thus are widely perceived as a reliable leading indicator for the stock market. The recent surge in Treasuries suggests that institutions have adopted a lower risk tolerance while the general decline in junk bonds is significant because a decline hasn’t happened since the 2008 collapse.
For the past two years, precious metals have competed with soaring equities for precious capital. The appeal of gold, in particular, as a hedge wanes when the stock market is on a record-breaking hot streak. If the sell-off in high-yield debt spills over into US equities, investors could be in store for a big-time reality check and this could give precious metals a long-overdue boost.
Could the vicious return of volatility be a sign that this is unfolding before our eyes? Time will tell.