By John McDonald
Saber rattling between the United States and China over trade policies is creating a surge in rare metal values.
If the standoff continues, investors in rare and precious metals could see skyrocketing portfolio values both near- and long-term.
At the end of May, Beijing warned it has a plan in place to restrict the exports of “rare earths” to the United States.
Rare earths are metals used in the manufacture of many electronic devices, cars, and, perhaps most importantly, magnets.
China provides about 95 percent of all rare earths in global trade, and Chinese exports of these metals account for about 80 percent of U.S. consumption.
While consumers and media outlets indulge in full-fledged panic, investors are preparing to fortify their portfolios for the inevitable fallout: a potentially astronomical rise in rare earth values.
“If [the trade ban] does happen, then we believe prices of rare earths will surge,” said Shanghai Metals Market researcher Racket Hu during an interview with Bloomberg TV.
Hu emphasized that at present, the ban is still a threat, not a reality.
However, shares in rare earths companies rose between 4 and 6 percent on Friday, May 31, 2019.
Not everyone is swarming the rare-earth shares sector, however.
In fact, more investors are focused on adding to their stockpile of more traditional precious metals, like gold, silver, and platinum, as the trade standoff continues.
Last week, gold prices posted double-digit gains thanks to its role as a “safe haven play” when global and national markets become volatile.
With no indication that the United States’ new, aggressive trade policy stance is likely to ease (President Trump announced new trade tariffs on Mexican imports the same day China issued warnings about rare earth restrictions), most analysts agree gold, silver, and platinum are all likely to rise in value in the coming months.
These precious metals have an added advantage over more exotic rare earths: they are rarer and their markets less likely to face interference from global trade bodies like the World Trade Organization (WTO), which passed a judgment against China when it attempted this exact strategy in 2010 (and most of the investing public, as well as the general media, did not even notice).
On that occasion, in less than a year, export quotas for rare earths were back to where they started as were rare earth values.
Gold, on the other hand, appears positioned for long-term gains whether the markets calm or remain volatile.
Many experts believe gold and other precious metals are poised for continued long-term gains, creating substantial opportunity for many investors who continue to hold excess cash.
Last month, Jamie Cox, managing partner for Harris Financial Group, told Barron’s, “Many investors have been waiting for a pull-back to deploy capital that was otherwise late to the 2019 rally – now you have your chance.”
With the uncertainty surrounding rare earths along with slightly more attractive pricing for gold and other precious metals versus earlier in the year, the time appears increasingly right for investors to diversify into gold, silver, palladium and other precious metals.