Platinum Set to Shine
Source: Financial Express, Lora Coventry (6/7/11)
"Platinum's underperformance trend is likely to change."
Commodity prices will continue to be volatile in the coming months, but precious metals will prove resilient, according to Willem Sels, HSBC Private Bank’s head of UK investment strategy.
"Already, volatility on the GSCI index spiked from 16% on 28 April to over 30% by 10 May, and it remains at those elevated levels," Sels said.
"Gold is likely to be a relative outperformer in the commodities space as most scenarios are gold supportive."
His comments come as ETF Securities announced a resurgence in demand for physically backed gold exchange traded commodities, on the back of another credit rating downgrade on Greece.
"High-inflation, resurgent-debt concerns in Europe and low-for-longer interest rates in the US are all supportive for [gold] prices," Sels continued.
"A slowdown in growth is unlikely to impact gold in the same way as other metals, which are more correlated to the growth cycle (i.e., more sensitive to industrial demand)."
The manager said as long as the Fed remains ultra accommodating, the gold rally is likely to continue, but cautioned that higher interest rates could, at some point, become an obstacle.
Sels also expects silver to underperform gold in the short term, but says industrial growth in China could support demand. With regards to platinum, he says the trend of underperformance is likely to change as rising wages in South Africa, added to its stronger currency, are leading to a rise in the cost of production of the metal, which should underpin prices.
"The gold:platinum ratio is fairly wide, and we believe that platinum has room to catch up with gold. However, a decrease in automobile demand in the coming quarters may materialize as the global economy slows, limiting price appreciation somewhat," he finished.