Investment Contrarians

palladium


Two Precious Metals with a Compelling Supply-Demand Dynamic

By for Investment Contrarians | Oct 29, 2013

Two Precious MetalsAs readers of Investment Contrarians are probably well aware, precious metals have been hit hard this year. Along with the drop in the price of precious metals, mining stocks have also significantly declined in price.

However, I think we might be entering a period of increased demand that should see higher prices for the precious metals sector and the associated mining stocks.

Longtime readers won’t be surprised when I mention two precious metals that are developing increased demand from industrial use: platinum and palladium.

In past articles, I have written extensively on both of these white precious metals and that there will be significant imbalances in the market—not the financial (paper) market, but actual physical demand for these precious metals.

As the majority of demand for both of these precious metals comes from industrial use, specifically in the construction of catalytic converters for the automotive industry, it’s quite easy to see where demand and supply will be moving forward.

Mining stocks involved in both of these precious metals are having difficulty increasing supply. The two nations that supply most of these two precious metals are Russia and South Africa. Mining stocks have had a significant amount of trouble over the past year especially in South Africa, with labor issues causing disruptions in production and higher costs.

Demand comes from vehicle sales, and with the cheap money being pumped worldwide, this means affordable financing for millions of people. As you probably know, car sales in America are booming once again. But a huge market over the next decade will be China.

When you consider there are still hundreds of millions of … Read More


What the Wealthy Are Doing to Beat Inflation

By for Investment Contrarians | Oct 7, 2013

Beat InflationWith practically every central bank around the world having the throttle fully open when it comes to monetary policy, investors with extra cash just lying around need to do something with it. While you could put this cash in a government bond or simply keep it in cash, these options aren’t going to help you beat the rate of inflation. Instead, investors should take a cue from the superrich and consider an investment strategy that includes hard assets.

As you may already know, an investment strategy that comprises hard assets includes traditional stores of wealth (such as gold and silver) and commodities (such as oil), as well as artwork and even cars.

While I advocate the traditional investment strategy of becoming a part owner in companies through equities, there are growing signs that even the superrich are becoming increasingly worried about having cash sitting idle and are looking at hard assets as part of their portfolio.

Just recently, a 1963 Ferrari “250 GTO” sold for $52.0 million! I like a nice car as much the next guy, but $52.0 million is a lot for one vehicle.

Obviously, the person buying it is not using it just to go grocery shopping; rather, it’s likely that the new owner is incorporating this item as part of their investment strategy to include hard assets (in this case, collectible cars).

To show you just how strong the market is for alternative hard assets by the extremely wealthy, a similar Ferrari 250 GTO sold last year for $35.0 million, which means this year’s sale is a 49% increase in price.

Of course, price appreciation in … Read More


The Biggest Precious Metal Winner This Year and Why Its Trend Upward Will Continue

By for Investment Contrarians | Sep 24, 2013

Precious Metal WinnerWith the recent shock of the latest Federal Reserve meeting now beginning to subside, the implications can now be extrapolated. By holding its foot on the accelerator, the Federal Reserve is opening the door to further price appreciation in many asset classes, including precious metals.

One of the precious metals I like is the little-mentioned palladium. While many of the precious metals covered by the mainstream (i.e. gold and silver) have been under pressure all year, palladium is actually positive for the year. Because so much of palladium is used for industrial purposes, the negative investor sentiment seen with other precious metals did not have as much of an impact on palladium.

The one thing you have to remember is that the precious metals that have a lower level of industrial use, like gold and silver, are susceptible to greater swings from investor sentiment (just look at last Wednesday’s $60.00 gold spike and the subsequent $35.00 decline Friday), because the industrial purchasers are not there to support them. In sum, investor sentiment can overtake the price of these precious metals far beyond fair market value.

However, the inaction by the Federal Reserve is positive for precious metals like palladium for several reasons. One especially noteworthy reason is that this move will boost the automotive industry. To keep the easy money flowing, the Fed will also keep interest rates artificially low, which will, at least over the short term, boost sectors that rely on cheap financing to draw in more consumers. As you may or may not know, car sales are booming in America. Plus, we’re now seeing European car demand … Read More


When Gold Bullion Prices Will Rebound

By for Investment Contrarians | Aug 7, 2013

gold bullionA common question that I receive from readers is in regard to gold bullion. Many people over the past few years have begun allocating a portion of their investment strategy into the yellow precious metal and are curious about what’s possible in the near future.

Naturally, with gold prices down over 20% this year, this has certainly hurt investors. The questions many are asking are: what will be the catalyst for a boost in gold prices and when will they rebound?

As I’ve discussed many times over the past few months, most of the selling in gold bullion has been through large institutions. These funds have been reallocating their investment strategy to incorporate a different landscape than what we’ve seen over the past few years.

While retail demand for physical gold has remained strong, there still remains far more supply than demand, as can be seen by the relatively depressed price. What is occurring that should help gold bullion prices is that most mining companies are curtailing their production of gold bullion.

Over the past couple of months, gold miners have written off over $20.0 billion in assets, which have become uneconomic due to the high costs of extraction and low price of gold bullion.

If demand remains stable, the eventual supply reduction should help gold prices. The investment strategy by these mining companies is completely appropriate, since one should not be producing at a higher cost than what is available on the open market.

I think we will continue to see many gold bullion producers close mines that have all-in costs in excess of $1,100 per ounce. Anything higher … Read More


Precious Metals: Down for the Count?

By for Investment Contrarians | Jun 13, 2013

Precious Metals: Down for the CountThe recent weakness in many precious metals has led some to believe the investment opportunity in that sector is over. However, I don’t believe that’s true—not all of the precious metals have the same fundamental drivers and thus have had varying levels of performance.

While some precious metals, such as silver, have dropped over the past couple of months, palladium continues to remain very strong. This strength is driven primarily by fundamental demand, especially in the automotive sector. Palladium is used in catalytic converters fueled by gasoline, the primary fuel in North America.

As you may or may not be aware, vehicle sales in North America are currently very strong. This strong level of sales is based on several factors, including a fleet of cars that is extremely old, low levels of interest rates providing cheap financing, and an economy that is beginning to recover.

The investment opportunity for precious metals that are primarily used for wealth preservation is almost impossible to predict, since a large part of the market simply holds on to the commodity without actually using it. However, there are some precious metals that are used for industrial purposes that have much easier methods of measuring their investment opportunities.

Palladium, for example, is one of the precious metals that have a calculable demand. According to LMC Automotive, they predict vehicle production in the U.S. will reach 16 million units this year, making it one of the strongest in the past decade. So strong, in fact, that LMC reports that the current level for vehicle production is almost at full capacity! (Source: Sedgwick, D., “N.A. Output will reach … Read More