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Soaring precious metals

Agriculture.com Staff 12/04/2009 @ 9:08am

Gold has been garnering a lot of attention as gold prices have soared to new all-time highs again this week to $12. Gold is a traditional store of wealth, and has long been held as an inflation hedge against future inflation. With gold soaring to new highs, lots of commentators are taking note and worrying about what that means to the future of the US economy. Many worry about inflation in the next few years, but currently the inflation rate is almost negligent for the US economy. So investors have been pouring money into gold as a store of wealth, especially since the US dollar (once considered the store of wealth) is declining in value recently.

But gold is not the only precious metal that has been soaring in price in 2009. While gold prices are up a huge 37% in 2009 thus far, many other precious metals are up even more for the year. Silver, for example, has rallied 71% in price from the beginning of this year, making silver a better investment thus far in 2009 than gold. Platinum is up 60.9%, also up more than gold prices.

Copper prices are up the most, gaining 132% into Wednesday's trade, a huge gain for copper in 2009 as prices have more than doubled since the start of the year. Palladium is up 105%, another strong gain and another metal that has gained enough to more than double for the year. One can see that not only are investors interested in storing wealth in gold, but in other precious metals as well. So far, that bet on precious metals as a good storage source of wealth has been a good one, as these commodities have all been excellent investments in 2009 (better than the stock market, and that has been good as well in 2009).

The gains for metals are some awfully strong gains for the year for the precious metal group as a whole. These are up much more than grains, which are struggling more this year after the 2006-2007 gains that were so significant. For comparison purposes, corn prices are down 4% in 2009, wheat prices down 9%, and soybean prices up 6% for the year. These are very little change relative to the precious metals. In fact, one could argue that grains have not kept pace with the other commodities in 2009, a year when most commodities increased in value. A potential reason might be that 2009 wheat, corn, and soybean yields were all above 'average' trend yields. The better than average crop sizes might be keeping grains from keeping up to the other commodities.

Compare that to the energy class of commodities. Crude oil has been up 72% for the year 2009 thus far, while heating oil is up 45%, ethanol up 32%, and gasoline up 98%. So for the year, the energy markets for the most part have been up sharply, but the quantity of the price rise varies a lot from one type of energy contract to another. Why did energies rise so much??? We could argue that to decline from $147 in mid-2008 to near $40 crude oil by the end of 2008 was a drastic change indeed. Maybe energy markets started the year at already well depressed levels?

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