Palladium, silver and copper may be in far more of a bubble than gold

Gold is the metal which always attracts the major intention in the metals commodities sector – perhaps because from time immemorial it has been synonymous with wealth, so when gold rises substantially over a long period it tends to attract more attention than other metals and minerals which may have had equal, or greater, rises.

Take 2010 for example. The financial press is full of articles about gold being in a bubble which will surely burst, but the 27-30% rise over the year (depending on which statistics one takes) is small beer compared with a 90% rise in palladium and 80% in silver over the same period. Copper too has seen a big rise, almost exactly matching that of gold, with a particularly sharp rise from mid-year, and since its price collapse in late 2008 the red metal has appreciated far more in percentage terms than its yellow counterpart – see the following graphic plotting the advances in prices for copper, palladium and gold over the past two years – as you will see the copper and palladium prices have both shown far steeper increases than gold. So which, if any of these metals is more likely to be in a bubble?

To an extent it all comes down to timing. If one charts the same metals over a longer or shorter period the percentage increases delineated will be considerably different. For example here’s a 5-year plot which shows considerable volatility in the copper and palladium prices. (If one adds silver into the mix for both the 1-year and 5-year graphics the plot is remarkably close to, and virtually overlies, that of palladium so for visual clarity it has been left out).

Does this mean copper and palladium have already been in a burst bubble from which they are recovering? Surely all a question of semantics and statistical interpretation!

Perhaps the main difference in investor classification is that copper, palladium, and to an extent silver (very much borne out by its similarity in performance to palladium), are seen as industrial metals with supply/demand parameters much more dependent on global industrial growth than gold where investment demand (seen as more fickle by the bubble proponents) has a substantial impact. Yet if one looks at the charts this ‘fickle’ investment demand has been consistently growing while the industrial commodities have suffered far more ups and downs – and sometimes very substantial ones. So where does logic suggest that the long term smart money places its bets? On performance over recent years it’s really no contest, although the traders may see better returns in moving in and out of the more volatile metals providing they get their calls right.

As for the industrially-oriented metals noted above, we are not suggesting that any price collapse is imminent, indeed they may continue their upwards path for some time yet as they are seen as being in a particularly tight supply/demand situation – but should China falter (and there seem to be signs that its exports may be slipping) – then things could turn around rapidly to a negative impact on prices and the volatile patterns seen over the past ten years could rear up again in terms of sharp price falls.

With gold the smart money is not betting on global growths, but against worldwide currency devaluation – not vis-a-vs other currencies but against a general long term loss of purchasing power in virtually all currencies. That is what Quantitative Easing suggests and as long as major governments keep printing money and expanding the money supply gold’s long term path should remain upwards. If governments stop pumping money into the economy to try and ward off recession/depression – something which does not seem imminent – then maybe that’s a time to revisit one’s gold investment policy, but for the meantime it would seem to remain the safer investment.

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