Palladium star performer in 2018


January 10, 2019

Pat Heller


For all the news coverage about strong U.S. stock markets for much of 2018, you probably didn’t realize that the performance of the price of gold outperformed all major U.S. stock indices last year.

Even though the price of gold fell slightly at the end of 2018 compared to a year earlier (its first annual decline since 2015 and only the fourth in the past 16 years), it still did better for the calendar year than the typical U.S. stock. Here’s the 2018 performance record for precious metals and major U.S. stock indices:

Palladium +16.8%
Gold – 2.1%
NASDAQ – 3.9%
Dow Jones Industrial Average – 5.6%
Standard & Poors 500 – 6.2%
Silver – 9.6%
Russell 2000 -12.5%
Platinum -14.8%

Note: the change in U.S. stock indices does not reflect dividends paid, which could improve the net results of the indices.

However, one year does not make an absolute statement about the state of the U.S. stock market. So, how did these same assets perform in the two years ended Dec. 31, 2018?

Palladium +85.0%
NASDAQ +23.3%
Dow Jones Industrial Average +18.0%
Standard & Poors 500 +12.0%
Gold +11.2%
Russell 2000 – 1.0%
Silver – 2.8%
Platinum -11.7%

Even a two-year comparison does not tell the whole story. So how have things fared thus far this century? Here is how they have performed since Dec. 31, 1999:

Gold +343.5%
Silver +185.2%
Palladium +185.0%
Russell 2000 +166.2%
Dow Jones Industrial Average +102.9%
Platinum + 86.9%
Standard & Poors 500 + 70.6%
NASDAQ + 63.1%

As you can see by the comparisons of results over the differing time periods, the results can be dramatically different. It matters very much what you use for the beginning and ending dates of your analysis.

How will precious metals and the U.S. stock markets perform in 2019? I don’t know. But I can see some factors that will affect markets:

Stock prices will not get a further boost from the major new tax cuts that were enacted at the end of 2017.

The class action lawsuits filed as a result of 2017 and 2018 convictions and plea bargains for manipulating (and overall suppressing) precious metals prices are likely to result in less price suppression activity in 2019.

The fall in U.S. stock markets following the Federal Open Market Committee’s decisions to increase the federal funds interest rates in their September and December 2018 meetings is almost certain to put greater pressure on the Fed to curtail indicated future interest rate hikes in 2019. It is even possible that any 2019 and even 2018 hikes may be reversed before the end of 2019. Cessation of federal funds interest rate increases would almost certainly contribute to a declining value of the U.S. dollar against other currencies.

There are many other factors that will impact U.S. stock markets and precious metals prices in 2019. The important lesson to draw from these performance comparisons and important factors in 2019 is that it would be prudent to include an allocation to precious metals as part of one’s investment portfolio, an allocation that I call “wealth insurance.”

Warning flags of coin dealers you may want to avoid.

As promised last week, here are some business practices I have observed practiced by some marketers that to me indicate dealers who may be looking out for their own interests rather than the interests of their customers:

Dealers who make cold calls looking for customers.

Dealers that use “teaser” ads or “bait-and-switch” tactics. I’ve heard from multiple customers who think they are savvy enough to insist that they would only buy the “too cheap” bullion-priced product offered who tell me that the sales representative on the phone just would not allow them to make such a purchase.

Dealers promoting leveraged accounts without full disclosure how this magnifies the profits for the dealer but puts the buyer, often without adequate disclosure, at substantial financial risk of magnifying their losses.

Dealers trying to steer you with the specter of “gold confiscation” when referring to the U.S. government’s 1933 mandatory fully compensated gold recall. Invariably, these companies never mention to most practical alternative if purchasing gold is truly risky – just buy bullion-priced silver.

Dealers trying to push customers into buying numismatic coins when they want to buy bullion-priced items. This is definitely the sign of a dealer looking out for its own profitability rather than the customers’ best interests.

Dealers who try to steer customers to establish a Precious Metals IRA. It does not make sense to place a tax-deferred asset into a tax-deferred account. There are easily another 10 drawbacks why a precious metals IRA is actually one of the worst ways to own physical precious metals.

Dealers who only sell to, but will not buy from, the public. In my experience, such companies tend to have very high selling prices.

Dealers who insist on completely avoiding the use of the postal system for payments and product shipments. Are such dealers afraid of running afoul of the U.S. Postal Inspectors?

Dealers who offer to break the law in order to make a sale. Self-evident.

Dealers who are normally unable to deliver physical product within 28 days, as that makes them subject to additional federal regulations. Do such companies have the financial strength to serve customers if they cannot deliver much sooner?

Dealers who prominently hype their Better Business Bureau membership. This may seem counter-intuitive. However, if you review the histories of major dealers who have collapsed and hurt large numbers of customers, they pretty much all prominently hyped their wonderful Better Business Bureau ratings.

Dealers who heavily advertise to sell gold and silver in radio and television commercials, or put large ads in the newspapers. The market for retail buyers of precious metals and numismatic products is a small percentage of the population who might be exposed to such promotions. In order for such marketing to pay off, too many of these companies charge prices much higher than most dealers.

In years past, it happened much more often than today that dealers used their own grading practices rather than industry standards such as those promulgated by the American Numismatic Association, or the major grading services. This tended to mask that truth that the coins they called a certain grade would not merit that grade as generally accepted in the industry. Still, if you now see a dealer stating something like “grading based on xx years’ experience” you would at least want to be very careful in trading with them.

This list is not exhaustive. It is possible that some wonderful dealers may engage in one or more of these practices. If they do, you may want to ask them why they do so.

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