The price of precious metals began a sharp move up in November 2005. The metal that seems to be most talked about right now is gold, which closed on December 12 at $536.50 a troy ounce, the highest price in 22 years, and was $502.50 at press time on December 20th. Why the spike? One reason is increased demand from investors who fear rising inflation and want to diversify their portfolios; using gold has historically been seen as a hedge against inflation in uncertain geopolitical times. The September 11, 2001 terrorist attacks renewed this notion of gold as an investment haven during turmoil.
Other reasons include increased industrial usage and demand from developing nations. In China, for instance, gold has been part of the culture and tradition for 5,000 years and is still regarded as a regal tangible asset. China has recently liberalized gold ownership after gold hoarding was forbidden in 1949; now it's more accessible and, since 2003, some banks have been given regulatory permission to sell gold shares and gold bars.
Demand for gold in India, the world's largest consumer of the metal, reached 277 metric tons in the second quarter of 2005 according to the World Gold Council in London. This is a 47% increase in demand from the previous quarter. Gold also holds religious significance in India and November's festival of Diwali makes up the bulk of seasonal demand for the last quarter of 2005. Higher oil prices resulting in profits in the Middle East also have been linked to higher demands for gold there; World Council figures show a 13.4% increase in Middle Eastern demand.
Other metals
Platinum also closed December 2 at the milestone of $1,000 per ounce, its highest level in more than 25 years. In a November 15, 2005 platinum review, London Refiner Johnson Mathey expected platinum demand to reach an all-time high and exceed mine supply, mostly due to growing demand for platinum auto catalysts in Europe, Japan and the U.S. The jewelry demand for platinum is less certain and will likely fall, since people purchasing jewelery might opt for gold instead of platinum due to the price difference.
Palladium is up over 21% since November 1 and closed December 2 at $266 per ounce. Towards the end of the 1990s, palladium prices rose and then spiked in 2001--to a high London close of $1,090 per ounce in January 2001--as the automotive, industrial and dental demand could not be met by a regular supply of palladium from Russia. As the automotive industry started substituting platinum for palladium in auto catalysts, palladium prices receded as platinum prices soared.
Silver, too, is up over 13% since November. China's $1.65 trillion economy is fueling demand for jewelry, electronics and photography; last year, its demand was about 1,624 tons. Globally, the demand for silver was 26,023 tons last year, 44% of which was used for industrial applications and the remainder for photography and jewelry.
John Maguire is the owner of Maguire and Strickland Refining.
Click here for a two-year history of London closes (by price per ounce).
