Platinum and Palladium

While silver may be a good long–term buy, there are other, and perhaps even more fundamentally sound, precious metals to choose from. Only a tiny percentage of investors purchase platinum and palladium — both of which have seen their prices rise over the past two years — as a U.S.–dollar alternative. Instead, the price is driven almost exclusively by industrial demand. The main use for both metals is to create catalytic converters, a device in cars that reduces the toxicity of emissions. As the auto sector recovers, and emerging–market demand for vehicles increases, more converters will have to be made.

For these metals, demand is already outpacing supply. For years, Russia, one of the main producers of palladium, stockpiled the commodity to keep prices stable. But that supply is nearly tapped, so Russia is no longer able to keep a cap on prices. "They've sold off the majority of their reserves," says Brahm Spilfogel, a vice–president and portfolio manager at RBC Asset Management. "You've lifted one negative element to palladium." The metal is primarily mined in South Africa, which, says Darren Lekkerkerker, manager of the Fidelity Investments Global Natural Resources Fund, doesn't have enough power to facilitate a supply increase. The mines are deep and costly to run, and many companies can't generate positive cash flow. All of this has pushed palladium prices through the roof. Since January 2009, the metal has jumped from about $200 to $800 per ounce.

Platinum is in high demand too. Its price has been on a steady increase for the past two years, climbing from around $800 an ounce in early 2009 to $1,800 today. The platinum–to–gold ratio is currently low — at one time, platinum was double the price of gold, but now it's about 1.35 times, meaning its price has room to grow. That makes palladium and platinum a better bet for more value–oriented investors.