Metals can be a precious part of a portfolio

cious metals such as silver, platinum and palladium might well prove a good defensive diversification.

Of course, gold is the traditional safe haven – when investors take flight it is gold which tends to benefit. It effectively operates as portfolio insurance. It offers no return in comparison with bond coupons and share dividends, only the potential for price appreciation. And then it is not always easy to forecast what direction prices might go.

Back in the 1990s sentiment was against gold – some pundits were claiming it was obsolete. Investors preferred safe Government bonds yielding a five per cent return. Central banks sold large parts of their gold reserves.

But then came the financial crash of 2007/8 which saw a dramatic reversal in gold’s fortunes. In 2011 it hit a peak of $1,875. Today it is much less with sector watchers predicting it will trade around $1,230 for the rest of this year. What then of other metals? Nitesh Shah, commodities strategist at EFT Securities, expects silver prices to rise 20 per cent this year and platinum by 10 per cent. Supply and demand is a factor.

He said a dearth in mining investment amid weak metal prices in recent years meant any expansion of mined silver was unlikely. With 80 per cent of platinum sourced in South Africa it is vulnerable to local shocks such as strikes. Yet with environmental issues pressing down on the automotive industry, platinum, used in vehicle catalysts, is in demand.

John Mulligan, head of member and market relations at the World Gold Council, argues that gold retains an advantage over its rivals.

He said: “Gold is not a universal panacea but, as a high-quality liquid asset, it can readily be used when other assets are under pressure and investors have few options to turn to, to protect their capital.

“The other metals do not always offer investors the same level of security because they are generally far too volatile, with supply more concentrated on specific regions and demand often rooted in a particular sector, making them more sensitive to industrial consumption cycles.”

And Adrian Ash, research director at Bullion Vault, takes a similar line.

He acknowledges silver, platinum and palladium share something of gold’s rarity, giving them strong appeal during periods of rising inflation. “But less than 10 per cent of annual global gold demand comes from industry, compared to 55 per cent for silver and 65 per cent for platinum,” noted Mr Ash. “That makes silver and platinum more useful in normal economic conditions but increases their vulnerability to slower growth or a credit crisis.”

On the other hand, the demand for both silver and platinum outstrips annual mine supply. That should continue to generate rising prices. Both should be given consideration when balancing a portfolio.

As they say… all that glitters is not gold. Trevor Law is managing director of Merito Financial Services, chartered financial planners,

based in Solihull. Email:tilaw@meritofs.com