Following Precious Metals Prices, Rare and Valuable Commodities
As the commodities boom continues apace, precious metals prices are being watched more closely.
Precious metals are rare and so have intrinsic high economic value. While they have historically been used as currencies and a store of value, today the precious metals have important industrial applications.
Precious metals do act as a barometer for inflation, with prices hardening during inflationary periods.
They will also react to unexpected or adverse news as they are still perceived as a safe haven in uncertain times.
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There is also rhodium which along with platinum and palladium are often classified as the Platinum Group Metals (PGM).
A classic example was the surge in the price of gold in January 1980 following the Soviet invasion of Afghanistan around Christmas 1979.
Gold reached an all-time daily high of $850 per troy ounce on the basis of London gold fixing on 21 January 1980, following this dramatic event, but then there followed a 22 year bear market in the metal.
Despite this, the huge industrial demand for precious metals from expanding emerging economies such as China and India, as well as growing jewellry demands from Asia, should lead to continuing upward pressure on precious metals prices.
Only if there was discovery of a new material which could substiute for a particular precious metal and so make a profound impact on industrial applications might its perceived intrinsic value and hence price be re-rated.
Precious Metal Futures Prices
You can follow the trend in futures prices, quoted on NYMEX, and these give an indication of how the market views the demand for the commodity going forward.
Sudden shocks like power failures in South African mines, which could seriously cut the output of gold, palladium and platinum, would be an event likely to cause futures prices to increase.
Take a look at futures contract prices for:
Alternatively, it is possible to follow the prices of a number of commodity indices which hold a basket of commodities, such as the DJ-AIG CI.
Spot Prices for Precious Metals
The London Gold Fix refers to fixing the gold bullion price by members of the London Gold Pool. The gold fixing is done in three currencies, the US dollar, the GB pound (sterling) and the Euro.
This London Bullion Market benchmark is key as it signals prices for gold products and derivatives across the major global commodity exchanges.
Just taking a look at the past four years we can see that precious metal prices have risen quite significantly, with gold reaching a high of $1,011 on 17 March 2008, a rise of 140% from its 48 month low.
Spot silver also reached its high of $20.92 on this date, rising 272% from its 4 year low.
And palladium also posted a strong 240% gain from its 48 month low to reach $585 on 28 February 2008.
Looking to the Future
The consensus is that the world has been in a commodities bull market since around 2000-1 and that it is expected to continue for until at least the end of the decade. While the emerging economies continue to develop their infrastructure and their populations desire new products, precious metals prices are likely to remain strong.
Just consider the use of the platinum metals group in catalytic converters in car manufacture and the expected increase in car sales in developing nations going forward and you can begin to see the implications for precious metals prices.
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