Precious metals glitter more than stocks on haven buying

Nervous about Western economies, investors turn to gold, silver, platinum and palladium.

If you thought stocks were the best performing asset in the last one year, think again. Precious metals such as gold and silver have done even better. Spot prices of gold on the Multi Commodity Exchange of India have shot up from Rs 15,855 for 10 grams to Rs 19,175 now, notching up a 21 per cent return for one year. Prices of silver have done even better, gaining 23 per cent. The BSE Sensex has managed only 19 per cent return over one year.

Investment demand

Gold has benefitted from reviving jewellery sales in Asia as well as investment demand.

With well-heeled investors once again becoming nervous about the prospects of Western economies, particularly the recovery in the US, buying in precious metals has picked up as a ‘haven' for storing surplus wealth. Exchange-traded funds piggybacking on gold, silver and platinum have seen a spurt in investment interest. Metals such as silver have gained from industrial applications as well.

Global picture

While global gold prices ($1,298/ounce) are at a record high, silver, after a breathtaking rally in the last nine months, hit a 30-year high at $21/ounce on Friday. Platinum prices are at $1643/oz — a two-year high.

Palladium has been another surprise element, delivering an even bigger gain of 84 per cent; its status as a precious metal is supplemented by its usage in premium cars to reduce emissions. With global auto sales charting a sharp revival, palladium has been in demand for use in catalytic converters in high-end cars.

Rupee appreciation Gold has trounced stocks even more convincingly in the global markets, with the yellow metal price in dollar terms delivering a 28 per cent gain since September 2009.

However, for Indian buyers of precious metals, the rupee's appreciation in the last one year (from Rs 48/dollar in September 2009 to Rs 45.2 now) has eroded their effective returns.

Gold prices

Spot prices of gold on the MCX rose 21 per cent over the past year compared with the 28 per cent surge in global gold prices. Gold ETFs, such as GoldBeES, have managed a marginally lower return of 19 per cent matching the Sensex. Investors looking to buy precious metals have the option of buying gold ETFs or trading precious metal futures for gold, silver and platinum on the commodity exchanges.