Gold and silver are recognized as precious metals and have been popular for a long time goldco review. Even today, precious metals have their place in a safe investor’s portfolio. But which precious metal is best for investment purposes? And why are they so volatile?
There are many ways to buy precious metals such as gold, silver, and platinum, and there are many good reasons why you should be involved in your treasure hunt. So if you’re just getting started in precious metals, read on to learn more about how they work and how you can invest in them.
Key takeaways
- Precious metals can diversify well and hedge against inflation, but gold, the most famous metal of its kind, is not the only metal available to investors.
- Silver, platinum, and palladium are commodities that can be added to your precious metals portfolio, each with its own unique risks and opportunities.
- In addition to owning physical metal, investors can access it through the derivatives market, metal ETFs and mutual funds, and shares of mining companies.
Gold
Let’s start with all of Daddy’s grandfather: gold. Gold is unique in its durability (it does not rust or corrode), predictability, and ability to conduct heat and electricity. It has various industrial applications in dentistry and electronics, but we know it primarily as a base for jewelry and as a currency.
The value of gold is determined by the market 24 hours a day, seven days a week. Gold is primarily traded based on sentiment – the laws of supply and demand have less influence on its price. This happens because the supply of a new mine is more important than the amount of gold force on the ground. Simply put, when the carriers feel a sale, the price goes down. When trying to buy, a new offer is quickly accepted and the highest gold prices are compiled.
Several factors are due to a greater desire to use the bright yellow metal:
- Systemic Financial Concerns – When banks and money are perceived to be unstable and / or political stability is in question, gold is often sought out as a safe haven for value.
- Inflation: When real rates of return on stocks, bonds, or real estate markets are negative, people often turn to gold as an asset that preserves its value.
- Political War or Crisis: War and political unrest have always hit people in the form of a golden program. Lifetime savings value can be made portable and stored until it needs to be exchanged for groceries, shelter, or a safe passage to a less dangerous destination.
Of money
Unlike gold, the price of silver is somewhere between its role as a store of value and its role as an industrial metal. For this reason, price fluctuations in the money market are more volatile than gold.
Therefore, while silver will trade roughly in line with gold as a deposit commodity, the industrial supply / demand equation has such a strong influence on the metal’s price. This equation has always been volatile with new innovations, including:
- Silver’s once dominant role in the photography industry, money-based photographic film, came with the advent of the digital camera.
- Massive rise in the middle class in emerging market economies in the East, creating explosive demand for electrical appliances, medical products, and other industrial goods that require cash inputs. From bearings to electrical connections, the properties of silver made it a desirable item.
- Silver use in batteries, superconductor applications, and microcircuit markets.
It is unclear whether or to what extent these events will affect overall demand for non-investment cash. One more fact: silver is influenced by its applications and is only used in fashion or as a store of value.
Platinum
Like gold and silver, platinum is traded 24 hours a day on global commodity markets. It often fetches a higher price (per troy ounce) than gold during normal periods of political and market stability because it is so much rarer. Much less metal is removed from the ground each year.
There are also other factors that determine the price of platinum:
- Like silver, platinum is considered an industrial metal. The greatest demand for platinum comes from automotive catalysts, which are used to reduce emissions damage. After all, jewelry is the most sought after. The remainder is used by chemical and petroleum refining catalysts and the computer industry.
- Due to the automotive industry’s heavy reliance on the metal, platinum prices are largely determined by sales and auto production volume. “Clean air” legislation may require automakers to install more catalytic converters, increasing demand. But in 2009, American and Japanese automakers began turning to recycled car catalysts or using a more reliable and generally cheaper metal: palladium.
- Platinum mines are highly concentrated in just two countries: South Africa and Russia. This creates more potential for cartel-like activities that would artificially support or raise platinum prices.
Investors should consider that all of these factors can make platinum the most volatile of the precious metals.
Palladium
Less known is less palladium than the previous three metals, which has more industrial uses. Palladium is a shiny silver metal that is used in many types of manufacturing processes, especially for electronic and industrial products. It can also be used in dentistry, medicine, chemical applications, jewelry, and groundwater treatment. Most of the world’s supply of this rare metal, which has atomic number 46 on the periodic table of elements, comes from mines located in the United States, Russia, South Africa and Canada. Jewelers first incorporated palladium into jewelry in 1939. When mixed with yellow gold, the alloy forms a stronger metal than white gold. In 1967, the government of Tonga issued palladium coins distributed at the coronation of King Taufa Ahau Tupou IV.
Metal workers can create thin sheets of palladium up to 250,000 thousand inches. Pure palladium is malleable, but it becomes stronger and harder when the metal is worked at room temperature. The films are then used in applications such as solar energy and fuel cells.
Catalytic converters are the primary industrial use for palladium because the metal is an excellent catalyst that speeds up chemical reactions. This shiny metal is 12.6% harder than platinum, making the element more durable than platinum.
Commodity Exchange Traded Funds (ETFs)
There are exchange-traded funds for all three precious metals. ETFs are a convenient and liquid way to buy and sell gold, silver, or platinum. However, investing in ETFs does not give you access to the physical product, so you have no demand for the metal in the fund. You will not receive an actual delivery of a gold bullion or a silver coin.
Joint shares and mutual funds
Precious metal miners’ shares take advantage of precious metal price movements. If you don’t know the value assigned to mining stocks, it may be wiser to stick with funds with managers who have strong performance records.
Futures and options
The futures and options markets offer liquidity and leverage to investors looking to make big bets on metals. The greatest potential gains and losses can be made with derivative products.
Silver bullion
The tires and bars are strictly for those who have a place to store them such as a safety deposit box or safe. Sure, for those who expect the worst, the bullion is the only option, but for investors with a time horizon, the pesky, illiquid bullion is absolutely adequate.
Certificates
The certificates provide investors with all the benefits of physical gold ownership without the transportation or storage. That said, if you are looking for insurance in a real disaster, the certificates are on paper only. Don’t expect anyone to take them in exchange for something valuable.
Are precious metals a good investment for you?
Precious metals offer a unique protection against inflation: they have intrinsic value, do not present credit risk and cannot be inflated. That means it cannot print any more. They also offer serious “agitation insurance” against financial or political / military disturbances.
From an investment theory perspective, precious metals provide a low or negative correlation with other asset classes, such as stocks and bonds. This means that even a small percentage of precious metals in a portfolio will reduce volatility and risk.
Precious Metal Risks
Each investment carries its own set of risks. While they may have a certain level of security, there is always some risk associated with investing in precious metals. Metal prices may fall due to technical imbalances (more sellers than buyers). That said, during periods of economic uncertainty, sellers take advantage of it as prices go up.
The baseline
Precious metals provide a useful and efficient way to diversify a portfolio. The trick to being successful with them is knowing your goals and your risk profile before you jump in. The volatility of precious metals can be harnessed to build wealth. If left unchecked, it can be ruined.