Precious metals shining brightest in 2011

Precious metals continue to shine brightest among investors amid renewed uncertainty over the outlook for the global economy, according to research by Lloyds TSB. Precious metals (gold, silver and platinum) were the best performing asset class over the first half of 2011, providing investors with a return of 4.9%.

All nine asset classes analysed delivered a positive return for investors in the first six months of 2011. Commercial property recorded the second highest return (3.7%) albeit from a low base, followed by international equities (3.2%). However, the average return from the nine asset classes over the first half of the year of 2.3% was much weaker than the returns enjoyed over the same period in 2010 (13%).

Silver was the top performer among precious metals in the first half of 2011

Silver significantly outperformed the other precious metals over the first half of 2011 with prices rising by 14%; more than double the increase in gold prices (6.6%). In contrast, there was a 1.9% fall in the value of platinum. In addition to its position as a safe haven investment, high demand for industrial uses has contributed to the strong rise in the price of silver.

but has weakened significantly since April

Since reaching a peak of $49 per troy ounce in April - a rise of 59% since the start of the year, the price of silver dropped by over a quarter (28%) to reach $35 per troy ounce by the end of June, amid a period of increased market volatility. However, silver prices at the end of June were still 87% higher than at the same point in 2010.

Precious metals also delivered the highest returns over the past year (36%), closely followed by commodities (34%). Similarly, precious metals have provided the highest returns over the past ten years (416%) with the fall in interest rates increasing the opportunity cost of holding this asset. Commodities (208%) recorded the second biggest increase over the ten years to 2011, followed by residential property (135%).

Suren Thiru, economist at Lloyds TSB, commented: "Precious metals continue to provide the best returns for investors against a backdrop of continued anxiety over the prospects for global economic growth and concerns over Eurozone sovereign debt risk and high inflation. Precious metals have benefited from lower interest rates over recent years as well as their position as a hedge against inflation and financial market uncertainty.

"The prospects for asset prices over the remainder of 2011 are likely to be driven in part by the level of demand from China and India. The extent to which higher commodity prices and fiscal austerity measures affect the global economic recovery will also be important factors."