Precious metals seem to be on a slippery downward slope at the moment, with the slip being provided by the declining oil price. Whether there is any medium to long term justification in this is in part dubious, but it remains to be seen if the markets take it this way, and if matters remain as they are then further short term losses may well be in store for investors.
The oil price decline, at least in the short term, does seem more than justified, however, but whether gold and platinum following suit is sustainable is perhaps another story. On the face of things, oil is on the decline because supply probably substantially exceeds demand and western economies are in such a state that companies and individuals are making a real effort to cut back fuels usage as a consequence while demand for motor vehicles appears as if it is diving. While consumption, and auto sales, in the emerging nations may be on the up, it's not enough to offset the decline in North America and Europe - at least for the time being. Long term though it may be another story, but that should have little impact on current supply and demand patterns and on near-term pricing levels.
If oil consumption, and auto production are both on the decline, so the theory goes, then platinum and palladium as primary catalysts in both gasoline production and in motor exhaust anti-pollution devices have to be vulnerable too. But platinum is in a quite severe supply shortage situation and with continuing power problems in the world's number one producer, South Africa, at worst it may be a question of supply and demand approaching balance rather than surplus. Palladium, on the other hand, which is already in surplus, could be hit hard by any fall in demand from the oil and motor manufacturing sectors so even current lower prices may not be sustainable.
Where does this leave gold and silver. Silver, by and large in recent years has tended to more or less track gold and assuming this will continue for the time being at least, it is with the direction of the gold price with which the investor needs to concern him/herself, and short term this may not be positive. We could see some recovery by later in the year, thouh, as investors at last take in that gold is driven by factors other than those which affect oil, platinum and palladium which in reality are all commodities dependent for their market values on the supply/demand balance.
Gold on the other hand has a whole batch of relevant price drivers of which supply and demand is probably less important than for most other traded metals. It is seen as a hedge against inflation, a protector from economic turmoil and a consequent portfolio diversifier. In many parts of the world it is considered to be money in its purest and simplest form and that should give it an edge when the world economy is in disarray as it is at the present.
At the moment gold is very much trading in line with oil with minute-by-minute charts showing a strong price movement correlation. But surely this has to be a short term phenomenon? Gold may follow the oil price downwards as the latter continues to decline, but at some stage the other factors governing its longer term value will take command and the price will recover. Plenty of even cautious analysts are still looking for gold to move back towards the $1,000 level again this year and this does not seem an unrealistic goal.