Analysts following precious metals, mining and commodities are generally bullish for the group in 2011, but they note that metals are prone to swings.
Volatility for spot gold, for instance, has been about 18% over the past 10 years, while that of palladium is roughly 31%, explains ETF Securities in its report “The Fundamentals of Precious Metals,” published in late November.
Since 2000, the group notes, the cumulative performance of gold has been 332% vs. negative returns of 30% for palladium.
Also, precious metals in the past decade have not been highly correlated with the movement of the S&P 500. The spot price of gold, for example, has had a correlation of -0.05 with the S&P over the past 10 years, says ETF Securities.
Gold prices could average $1,500 per ounce next year and $1,600 by year-end in 2011, says Thomas Winmill, president of Midas Funds. And UBS raised its 2011 gold forecast last week from $1,400 to $1,550 an ounce.
Goldman Sachs predicts that precious metals are poised to give investors the best returns among commodities in 2011, with a 28% gain expected in the group next year, due to strengthening U.S. demand, according to a Bloomberg report.
The investment bank also expects gold to reach $1,690 an ounce in 12 months, from about $1,390 today, and it could peak in 2012.
“Absolute faith in fiat currencies remains shaky, [and] gold is currently behaving as a currency rather than a commodity,” wrote U.S. Global Investors analysts in their weekly investor alert of Dec. 17.
Volatility & More
ETF Securities, which markets exchange-traded products that are physically backed by bullion, suggests that advisors and investors appreciate the unique characteristics of the precious-metals markets before jumping into the group.