A Tale of Two Metals

For Platinum, this is the worst of times.  For Gold, things aren't so bad.  Below are graphs of the spot rates of gold and platinum over the course of 2008.  Platinum has declined by an astounding 63% from its highs earlier this year, while Gold is only off roughly 15%, and is trending higher.  For the last few weeks, many people have asked me why commodities haven't rallied in the face of blatantly inflationary fiscal and monetary policy from Congress and the Fed.  I have previously explained the process of de-leveraging on this blog, and I continue to believe that process will be with us for another 6-9 months.  While this unfolds, commodities generally will be depressed, as will foreign currencies vis-a-vis the dollar.  There will be ups and downs in these markets, but the overall trend will be clouded by de-leveraging and unwinding for some time to come. 

What is particularly interesting about Gold, however, is that it has not been as affected by de-leveraging as other commodities.  The explanation for this is hidden in a few obscure facts.  First, the retail price for gold bullion, that is, physical gold, not gold futures, has been between 9%-15% above the spot price of gold on the London market.  This indicates that individuals have substantially increased their demand for real gold.  

Peculiarly, platinum's supply and demand functions are closely related.  According to Monex, a metals trading company, if the world stopped extracting platinum from the ground today, there would be only one year's worth of platinum before the consumers of it would run out.  In contrast to gold, where there is an estimated 25 year supply of gold already extracted from the ground before demand would catch up with supply.  This indicates the imputed value of gold as a store of value and hedge against inflation.

Gold's historic price stability further confirms its status as the default currency of choice in uncertain economic times. 

Keep watching, but it appears that Gold will outpace Platinum when the overall inflationary effects of current policy begin to take effect.

 

International Assets as a Hedge Against the Dollar's Coming Decline

The dollar currently enjoys a temporary boost in its value vis-a-vis other major international currencies. We have discussed some of the reasons for this previously.  Recently, the Blue Star analysis was confirmed by Euro Pacific Capital, which is headed by Peter Schiff, one of the few major market analysts to predict the current financial crisis.  Read their similar assessment here.  

Individuals who want to hedge their own portfolios should get in touch with Euro Pacific.  They specialize in foreign brokerage and investing.  Companies and businesses who are looking for ways to earn a return on their capital as well as hedge against the coming decline of the dollar should contact us at Blue Star.

Traditional currency hedges are simply not going to be enough, and they are merely a speculative financial tool, not an investment.  Let us not forget Benjamin Graham's consistent distinction between speculation and investment.  

Investing into foreign operational businesses, whether as minority shareholders or as the sole owner, offers American companies the ability to hold assets in foreign currencies that are not likely to depreciate as quickly as the dollar if the U.S. government continues its irresponsible monetary and fiscal spending spree, while simultaneously growing the real value of their assets under well managed companies with real customers, real products, and real profits.  It is a currency hedge and an asset investment all wrapped up into one.  

If you are a business owner with capital that needs to be reinvested, or you are looking to divest of some of your domestic assets in favor of something that offers long-term safety, contact us at Blue Star and we can assist you in finding and acquiring the kinds of assets that will protect you in these uncertain times.