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What a month for precious metals.
Amid persistently low interest rates, sudden moves by world central banks—particularly the Swiss National Bank—and global growth concerns, gold and silver had their best monthly performances in recent memory, appreciating 5.7% and 11.7% respectively.
A swift spike in the prices of precious metals is indicative of widespread market uncertainty, which has been a theme so far in the new year, as the S&P 500 has already fallen 2% amid rising volatility. We’ve seen investors reallocating capital away from growth-sensitive commodities like oil and copper and into precious metals, which are historically viewed as a store of value. And since the rash move by the Swiss National Bank to end its cap of the Swiss franc against the euro has tarnished the franc’s safe-haven reputation, we could see more money flowing into precious metals in coming months.
Platinum also had a stellar month, rising 6.0% over the last 30 days as a result of the same conditions that drove other precious metals higher. However, palladium—which was the best-performing precious metal of 2014—lagged well behind its peers, falling 4.7% for the month. Although the short-term performance was subpar, Barclays recently released a report forecasting that palladium would outperform all precious metals again in 2015. In addition to the persistent supply and demand imbalance, tighter emission standards across the board and strong demand in the US and China were cited as reasons for the optimistic outlook.
Overall, we should continue to see strong performance from our precious metals holdings as long as global market volatility persists. As always, we’ll continue to monitor our holdings and will alert you if anything comes to our attention.
Even if you don’t invest in Japan, you’ve probably heard about the incredible performance of Japanese stocks over the past couple years. The Nikkei—Japan’s benchmark equity index—has climbed more than 65% over the past two years.
The rally in Japanese stocks is somewhat perplexing when you think about Japan’s well-publicized economic woes (e.g., the planet’s highest debt-to-GDP ratio and seemingly incurable demographic problems). Of course, stock markets aren’t the barometers of economic health that they used to be.
Still, the disconnect between Japan’s real economy and its equity market is concerning, though not inexplicable. It all comes back to “Abenomics”—an unprecedented monetary experiment unleashed by Prime Minster Shinzo following his reelection in December 2012.
So far, Abenomics has successfully lifted Japanese stocks and buried the yen, which has slid 25% against the dollar since the beginning of 2013, though it’s failed to rejuvenate Japan’s economy, which has been battling deflation for decades.
Economics 101 tells us that Japanese exporters should benefit from the devaluation of the yen. That hasn’t happened, at least not yet in a meaningful way.
Japan’s trade balance has been deteriorating since 2010. The introduction of Abenomics only exacerbated matters—and at a steep price.
It’s critical for investors to understand the failings of Abenomics. Currencies across the globe are joining the yen in a race to the bottom. It’s a terrifying trend that is sure to produce massive inflation. It may (or may not) take years for inflation to show in the official readings, but rather than wait for that to happen, why not use today as an opportunity to acquire precious metals while they are still at multiyear lows.