In recent years, many people have been shunning stocks and investing in gold, usually thought to be a safe play for troubled times. But gold is looking somewhat tarnished lately. From its high of around $1,920 an ounce in September, it has lost almost 18% as of June 11. Other metals have followed a similar downward trend.
Yet there's a shiny glimmer amidst the investment dross, a metal that for the moment appears to be a winning alternative to the favorite of King Midas: Behold titanium, whose outlook is robust thanks to a big uptick in the aerospace industry.
The Deflating Gold Bubble
Right now, gold is falling so steadily even alchemists must be getting disgruntled. Certainly investors in it are groaning. Gold futures dropped another 6% in May to continue a four-month streak of losses.
"Gold is a bubble, and I think the bubble continues to unwind," said John Mothersole, the lead nonferrous metals analyst with IHS Global Insight's Pricing and Purchasing Service. "Unless you believe in the Mayan calendar cycle, gold is a bad decision."
The tumble that gold prices have taken can be traced in part to a decline in the rupee-dollar exchange rate that began in the third quarter of 2011. India is the largest consumer market for gold in the world, and the drop in the purchasing power of the rupee has big effects.
"The price of gold has just shot up dramatically for someone in India, and in the consumption market basket, that means a big decline in demand," Mothersole explained.
Aerospace Is Looking Up
On the other side of the coin, though, you have the projections for titanium. Aerospace manufacturing is in a healthy growth phase, and that means a rapidly rising demand for the strong, lightweight metal.
The Boeing (BA) 787 Dreamliner is in production with a delivery goal of 10 planes a month. Over at rival Airbus, the troubles and delays plaguing the A350 have been resolved, and that widebody aircraft will go into commercial production by 2014.
Both planes use loads of titanium, which gives the market for the metal significant buoyancy. After the typically volatile titanium market hit bottom in 2010, it rallied, with U.S. mill product shipments clearing 100 million pounds for the first time ever. That figure is projected to reach 110 million pounds this year, according to the IHS Global Insights April titanium report. And there could be double-digit price gains to boot.
"You're got record backlogs at Boeing and Airbus, so unless you get cancellations -- but that's inconceivable -- there will be real product shipments of titanium sheets, tubes and pipe product, such that shipments look to set records over the next two to three years," Mothersole said.
Meanwhile, China is looking to hop on the large plane bandwagon too: It hopes to have its first Comac C919s ready for delivery in 2016. And Beijing is directing significant investments into commercial space exploration.
Coupled with those civilian uses, there's a big military industrial need for titanium. Over the next few years, Lockheed Martin (LMT) will be building hundreds of F-35 fighter jets for the U.S. and a host of friendly foreign powers.
So how can the average investor tap into this perfect storm for a rare and useful metal?
The easiest way is by investing in either of two publicly traded companies -- Timet Titanium Metals (TIE) or RTI International Metals (RTI). It's otherwise difficult to isolate an investment in titanium: You can't buy a titanium futures contract, and a general metals exchange-traded fund would also include flagging gold and temperamental copper. Timet closed Monday at $10.96 a share, and RTI ended the day at $20.46.
While the prices for those stocks have trended downward recently, Goldman Sachs (GS) has endorsed RTI as a good bet come 2013 based mostly on the outlook of aerospace.
"RTI remains bullish on the medium- to long-term trends in the aerospace sector, in line with our expectations," wrote Sal Tharani, a Goldman research analyst, in May. The Additional Advantages Of Titanium
Thanks to the slowdown in aircraft production caused by the Great Recession, the titanium industry has had time to catch its collective breath and lay in a supply to meet newly rising demand. The previous pattern for titanium had been demand growing rapidly on the wings of a cyclical aerospace industry until it exceeded the supply: In those scenarios, prices shot skyward, then crashed.
This time around, with inventory stashed away and 2 billion tons of titanium available worldwide, there's less concern over supply, and the versatility of the metal will protect its position in the marketplace.
"Titanium is very corrosion resistant and you have a good strength-to-weight ratio," said Kuni Chen, a U.S. metals and mining industry analyst at CRT Capital Group. "It's used not only in high-end applications aerospace, but also nuclear power plants and oil and gas drilling."
And it will continue to play an ever increasing role in intricate industries such as the medical devices field.
"For medical devices, titanium plays an important role because it's biologically inert," Mothersole said. "It's strong and light. you can fashion all things with it like catheters and artificial knees and joints."
The Most Useful Things the World Does With Gold
Forget Gold: Titanium Will Be the Metal With the Midas Touch
When most people think of gold, they usually think of jewelery, or coins and bars -- the metal as a hard investment. Today, though, gold is used in host of technological and industrial applications.
Article by Paul Ausick
Jewelry still accounts for the biggest share of demand for the precious metal. In the second quarter of 2011, jewelery makers purchased nearly half of the total gold demand of 920 metric tons, according to the World Gold Council's latest Gold Demand Trends report. Demand from investors accounted for 39% of the total. Only 13%, or 118 metric tons, went for technological and industrial uses.
The precious metal's unusual chemical and physical qualities make it a highly desirable material for use in six specific industries, according to the the World Gold Council: electronics, nanotechnology, automotive, space, engineering, and medicine. Some of the uses are fairly mature: dental fillings, for example. Other uses in engineering and nanotechnology are still in their early days.
Of the 118 metric tons used last year industrially, 84 metric tons went to electronics and 11 metric tons to dentistry. Of the remaining 23 metric tons, most of the gold was likely used in electroplating, as the other technology applications use minute amounts and many are not even available commercially.
Gold's current high prices are no doubt curbing a more widespread use of the metal as an industrial commodity. While miners and investors might not mind the steep rise in price, industrial users and consumers will either search for substitutes or delay buying.
The world today is full of electronic circuit boards, from computers to cellphones. Because gold is a highly efficient conductor, it's used to make the bonding wires that connect those circuit boards' components -- and there are thousands of connections on a single circuit board. But because those bonding wires are thinner than a human hair, the total amount of gold used is minuscule. A mobile device like a smartphone or tablet PC contains about 0.0002 ounces of gold. At $1,800 an ounce for gold, that's only 36¢ worth of gold in a typical device. Of course, with 1 billion phones manufactured each year, demand for gold from that industry alone adds up to 91 metric tons of gold -- $360 million worth. More will be accounted for by the 400 million desktops and laptops, and the more than 250 million TVs that will be manufactured in 2011 alone.
For centuries, gold has been used to make stained glass -- and not just golden-hued glass, either. When it's broken down into nano-sized particles -- we're talking billionths of a meter -- the precious metal stops being gold colored and reflects a deep crimson red or a light blue. Nanoparticle gold also has a wide variety of other uses -- especially as a chemical catalyst. Using gold as a catalyst in making paints and adhesives could lead to the elimination of toxic mercury from the process. In chemical processes, a gold catalyst can lower both the temperature and pressure needed to start a reaction, thereby reducing the amount of fuel needed -- and thus the cost of production.
Using gold leaf as a decorative element on buildings has a long history: The Egyptians were the first to figure out how to stretch a single ounce of gold into a thin sheet that could cover 200 square feet. Today, even thinner films of gold are used as a reflective coatings on windows to keep buildings cooler. It's now possible to stretch an ounce of gold to cover up to 1,000 square feet of window surface. Similarly, a gold-palladium alloy is used to braze metals subjected to very high operating temperatures, like jet engines. A thin plating of gold is also used on some parts of fuel cells to reduce corrosion and increase electrical conductivity.
Catalytic converters have used precious metals for years to remove harmful emissions from car and truck exhausts. Platinum and palladium are the most popular, but the recent addition of gold to catalytic converters used on diesel-powered vehicles opens up a new use for the metal. These gold-added converters are coming into widespread use in Europe, where engines have to meet the world's most stringent emission requirements. When the technology was introduced in 2008, gold was cheaper than platinum or palladium, making those catalytic converters at the time cheaper than those using other precious metals. For the moment, this is no longer the case.
Gold's attributes of high reflectivity, electrical conductivity and corrosion resistance have made it a mainstay of space programs. In the U.S., the now-defunct space shuttle program used about 90 pounds of gold in each shuttle -- about $2.4 million worth at today's prices. Putting gold into space may be the equivalent of sending coal to Newcastle: Recent research indicates that the Earth's gold may have come from a massive meteor shower that hit the planet 4 billion years ago. And there's plenty more where that came from. The single asteroid Eros contains more gold than has ever been mined on Earth.
Because of its resistance to tarnishing and decay, gold has been used in medicine for thousands of years. Ayurveda practitioners in India today are estimated to consume a few metric tons of gold every year. In the seventh century BCE, the Etruscans used fine gold wire to fasten false teeth. Modern dentistry continues to demand gold -- 11 metric tons of it in the second quarter of 2011 alone. Nanoparticles of gold serve many other modern medical uses -- in pregnancy test kits, in treatments for rheumatoid arthritis and certain cancerous tumors, to detect quickly the presence of food-borne pathogens like salmonella and E. coli, and to provide rapid screening tests for HIV.
Finally, in terms of pricing, it's not as sensitive to exchange rates as copper or gold. That's because titanium is already used in expensive projects from the get-go.
"You have to look at the cost of the raw material in terms of the end-market application," Chen said. "There could be a $200 million aircraft, and so if there's $10 million of titanium [in it], it's a relatively small amount -- a drop in the ocean -- and small changes [in price] won't sway buyers either way."