As the decade opened, precious metals (namely gold) were among the most popular commodities for long-term investors. Many had grown comfortable with the commodities as safe haven assets that would help to protect their portfolios from inflation and any unforeseen market dips. But Ben Bernanke may have let the air out of the precious metals world when he announced that the Fed would begin tapering its bond purchasing late this year or in early 2014 [for more precious metals news and analysis subscribe to our free newsletter].
Precious Metals at a Pivotal Point
These hard assets are in quite a bind now that the end is in sight for quantitative easing. For a while, the consistent money printing from the Fed had propelled these assets higher, as many felt that the dollar was becoming diluted, making assets like gold much more attractive and poised to make a run. Some were calling for gold to jump as high as $5,000/ounce, only to watch the precious metal suffer a sharp correction.
Now that Bernanke has announced the end of QE is near, precious metals have pressure from both sides. On one hand, the ending of QE means that there will be less money printing, taking away one of the key reasons that precious metals made their run higher in the first place. On the other hand, these commodities have also been weak because of a strengthening economy, which has prompted many investors to increase their risk appetite [see also Jim Rogers: The Gold Correction Is Not Over].
One of the chief reasons that the Fed will be tapering is because they feel that the economy is on stable enough ground to handle it. If the economy continues to improve, precious metals will probably feel the pressure.
There’s a Catch
An improving economy can be bad for gold (undoubtedly the most popular precious metal), but there is a silver lining, no pun intended. Silver, platinum and palladium are often considered quasi-precious metals and quasi-industrial metals, as the three have many more practical uses than gold. If the economy does continue to improve, there is a fair amount of room for these metals to make a run higher based on their industrial demand, but that would require shaking off their precious metals stigma [see also Precious Metals Look Golden For Market Bears].
To say the least, the near-term future for precious metals is quite hazy. Though many are in agreement that the metals will find their way at some point down the road, it seems that no one can agree on when exactly that will be. For now, all investors can do is wait patiently and keep a watchful eye on the market.
Disclosure: No positions at time of writing.