Investors are too precious with gold, silver and platinum and the real returns are in other metals, warns a financial firm.
The cost of gold and other precious metals is rising despite a depressing 12 months that has seen a trend of lower prices.
After falling to a five-year low of $1,198 an ounce in December from $1,837 in September 2011, the gold market has rallied to $1,250.
Silver has also increased in value by around 6% since the turn of the year.
The main stimulus for the price rises is demand for jewellery from India and China.
The price is just about right for investors to consider precious metals as a hedge, explained Nick Brooks, head of research at ETF Securities, but the jury is still out on whether the market is in the throes of a real recovery.
Negative outlook for gold
Gold dipped in value by 27.5% last year.
Some investors view the markets are looking at precious metals too negatively.
“The sentiment and the economic indicators are all negative for gold, tapering by the US Federal Reserve is bad for gold, and economic data from many markets also indicates that the global economy is improving, which is not good for the price of gold,” he said.
“While the price of gold is not an opportunity to take advantage of the economic recovery, two precious metals like palladium and platinum are.”
Palladium is a key commodity for making cars, and demand for new cars is rising in the US and China, which is likely to see the price of palladium rise.
Platinum may fare better as the metal is in demand for industrial processes as well as jewellery.
Brooks is not the only market specialist talking down investing in precious metals.
Although the price has hit a 28-month low, the 27.5% is the biggest slip in gold prices for more than 30 years.
“The drop is not only hurting investors, but mining companies as well,” said John Stephenson, a portfolio manager with First Asset Investment.
“Even if the global economy switches gear and improves, few people see much change in gold prices over the year. It seems that the love affair sensible investors have had with gold has come to an end.”
Analysts also look to the US government’s new Volcker laws aimed at restricting banks from casino investments and hedging – and trading gold and silver for quick profits.