1 June 2019, Prague – The well-known exchange rule says: “Sell in May and go away”. Professional dealers in securities should follow this rule. It is based on historical experience that after May, there is usually a decline on stock exchanges. At the end of May, this saying was fulfilled. The Dow Jones stock index fell to a limit of 24,500 points.
The trade war between the US and China begins to awaken again after a period of relative calm. These powers mutually impose duties again. By doing so, they raise investors’ concerns about the slowing economy and a lack of confidence in the future economic performance of companies. At the end of the month, the US President Donald Trump only made it worse by introducing tariff barriers to the goods coming from Mexico. The reason for these measures is the continued migration (despite the laboriously constructed wall) from the southern neighbour of the United States.
This development again enforced investors to move to safety, i.e. to gold, which resulted in the growth of its price. We can hardly assume that the next months will bring peace. There will be the US presidential elections next year. Donald Trump will certainly do the impossible for his re-election, and there will be no shortage of surprising steps and unexpected statement on his part.
The results of the European elections have brought some calm to Europe, though, probably only for a short time. In autumn, Great Britain should start over to leave the EU, however, it is not clear if it happens based on a certain agreement or so-called Hard Brexit, which would bring a chaos to all the economies of the old continent.
A political and economic uncertainty around the world is likely to remain the strongest argument for purchasing gold. The growing demand for gold confirms the fact that many investors prepare their saving and investment portfolios for this reality in advance. In the periods less favourable for other investments, gold can alleviate or entirely balance their decline. Therefore, the financial portfolio with the gold included is rightly described as an all-weather portfolio. Thanks to it, investors can secure their property and wealth.
Switzerland also follows Germany with the survey of popularity of individual forms of saving and investments. Gold is the most favourite investment for 48% of the Swiss and it placed right behind the property. Every fifth Swiss plans to invest in precious metals. The university from St. Gallen, which compiled the survey and published it at the end of May, states: “Low interest rates, faded attraction of classical forms of saving such as a saving account, economic and political uncertainties are hallmarks of the present days. Investors are increasingly relying on physical precious metals because this form of investment is an anti-inflationary and key reserve in times of crisis”. Almost 61% of the Swiss consider precious metals as a wise investment. The share of investment in precious metals makes up more than 26%. The desire for safety, stability, wealth creation and finally profit are important reasons for investing in precious metals.
The correctly prepared portfolio and purchases of gold in “calm” periods are more effective than purchases at the times when its prices begin to grow rapidly. With IBIS InGold, it is possible to invest in gold even with small amounts while gradually balancing and upgrading the portfolio.
Precious metals in May 2019
Gold – it grew practically the whole month; it experienced the lowest values at the beginning and the highest ones at the end of May. On the last day of the month, it easily exceeded the limit of 1,300 USD per ounce while going higher. Another important limit is 1,320 USD where it stopped at the last price increase. The main reason for gold strengthening is a fall in shares as well as cautious statements of FED regarding the development of interest rates. The FED begins to admit the possibility that they could even fall this year. It will depend on the current inflation development and economic and political stability.
Silver – it coined its way in May and its price did not copy the price of gold this time. This unusual situation has arisen due to the economic rivalry between USA and China. After all, silver is still perceived as an industrial metal, therefore, its prices are under pressure in times of expectations of economic difficulties. It also results in increasing the price ratio of gold and silver. Nowadays, we can buy one ounce of gold for 88 ounces of silver, which is the highest ratio since 1993. Until the business war continues and so do the fears that the world economy will not grow, the price of silver will also be low. It will be crucial for silver to remain above 14 USD per ounce.
Platinum – it is still under pressure due to the decline in sales of diesel vehicles. As for the first quarter, the sales of diesel vehicles fell by 17.9% in Europe compared to the same period of the last year. Diesel engines are being used by less than 1/3 of cars in traffic. There is some hope for platinum consisting in introducing so called fuel cells for hydrogen engines. Platinum serves here as a catalyst for chemical reactions and its use is higher than in catalysts of diesel engines. However, extension of these fuel cells is much lower than would be needed for platinum to replace the fallout in the power consumption in diesel engines.
Palladium – it glanced briefly below 1,300 USD per ounce after a long period of growth. It returned very quickly back above it. In fact, it benefits from the fall in sales of diesel engines. The introduction of duties by the US on imports of cars from the European Union, which has been currently delayed until mid-November, is a possible threat to it. If the duties are truly implemented, the export of European cars to USA may fall by more than 50% and thus palladium would be under huge pressure.
Chief Executive Officer of IBIS InGold®, a. s.