Should advisors be looking for gold alternatives?

Take note financial advisors, all that glitters is not gold.

Silver can shine too sometimes.

The SPDR Gold Trust (Ticker: GLD) is up over 13 percent so far this year and 18.2 percent over the past 6 months thanks to geopolitical worries, central bank buying, dollar destabilization, Indian weddings and whatever else drives the price of the yellow metal. As even the top Wall Street precious metals strategists will attest, it’s not easy to pinpoint the exact reason for price moves in gold. Often, like in religion, it’s a matter of belief.

Yet for all gold’s luster both in jewelry and safety deposit boxes, it’s been silver that has been the more precious of the two metals in recent months.

The iShares Silver Trust ETF (Ticker: SLV) is up just over 15 percent in 2024 and 18.4 percent in the past 6 months.

Christopher Davis, partner at Hudson Value Partners, says he is not currently seeking direct exposure to silver, but through holdings in gold focused royalty companies he does receive some ancillary exposure. 

“All commodities are cyclical, but gold demand can broadly come from central banks, investors, jewelry, and industrial applications,” said Davis. “Gold has thousands of years of history behind it as a store of value, unit of account, and in some corners of the globe is reemerging as a means of exchange. Over longer time periods gold can be competitive with many more elaborate ‘absolute return’ style investments.”

WHAT ABOUT PALLADIUM AND PLATINUM?

Nevertheless, while gold and silver have shined, their even more scarce relatives palladium and platinum have offered up dull performances year-to-date.

The abrdn Physical Palladium Shares ETF (Ticker: PALL) is down just under 7 percent in 2024, while the abrdn Physical Platinum Shares ETF (Ticker: PPLT) has dropped 6.3 percent.

George Milling-Stanley, chief gold strategist at State Street Global Advisors, says platinum and palladium are used primarily in industrial applications. Gold, on the other hand, has diverse sources of demand, including major use in jewelry, investment, central bank official reserves, in addition to industrial products.

“Platinum and palladium are used in jewelry and as an investment, but these uses are minor in comparison to their industrial use,” said Milling-Stanley. “With doubts about the sustainability of industrial growth, it should come as no surprise that these metals are not performing as well as gold.”

Meanwhile, Sean Beznicki, director of investments at VLP Financial Advisors, says he understands the factors driving demand for platinum and palladium because of their use in electric vehicles and smartphone batteries. Still, he limits his direct exposure to precious metals as a whole due to their lack of dividends.  

“Unlike stocks or bonds, precious metals rarely generate income in the form of dividends or interest, leaving investors to rely solely on price appreciation to make a profit,” said Beznicki. “This can become less predictable as global factors such as inflation, interest rates, and geopolitical tensions can cause whipsaw-like fluctuations in the precious metals market price.”

Finally, Joe Cavatoni, market strategist for North America at the World Gold Council, is also of the mind that industrial use is driving platinum and palladium prices, while gold has a broader range of applications as a monetary asset – and that explains the big difference in prices right now between the precious metals.

“Taking into consideration the global environment where we've been dealing with changing monetary policies and heightened geopolitical risks, it is to be expected that gold will see increased levels of price movement, especially to the upside, and adoption as many central banks and investors determine how it can factor into a broader investment portfolio," said Cavatoni.