Gold and silver have been recognised as valuable metals, and have been coveted for a long time. Even today, precious metals have their place in a savvy investor’s portfolio. But which precious metal is best for investment purposes? And why are they so volatile?
There are many ways to buy into precious metals like gold, silver, platinum, and palladium, and a host of good reasons why you should give in to the treasure hunt. So if you’re just getting started out in precious metals, read on to learn more about how they work and how you can invest in them.
- Precious metals can be a good portfolio diversifier and hedge against inflation – but gold, perhaps the most well-known such metal, is not the only one out there for investors.
- Silver, platinum, and palladium are all commodities that can be added to your precious metals portfolio, and each have their own unique risks and opportunities.
- In addition to owning physical metal, investors can gain access through the derivatives market, metal ETFs and mutual funds, and mining company stocks.
We’ll start with the grand-daddy of them all: gold. Gold is unique for its durability (it doesn’t rust or corrode), malleability, and its ability to conduct both heat and electricity. It has some industrial applications in dentistry and electronics, but we know it principally as a base for jewellery and as a form of currency.
The value of gold is determined by the market 24 hours a day, seven days a week. Gold trades predominantly as a function of sentiment—its price is less affected by the laws of supply and demand. This is because the new mine supply is vastly outweighed by the sheer size of above-ground, hoarded gold. To put it simply, when hoarders feel like selling, the price drops. When they want to buy, a new supply is quickly absorbed and the gold prices are driven higher.
Several factors account for an increased desire to hoard the shiny yellow metal:
- Systemic financial concerns: When banks and money are perceived as unstable and/or political stability is questionable, gold has often been sought out as a safe store of value.
- Inflation: When real rates of return in the equity, bond or real estate markets are negative, people regularly flock to gold as an asset that will maintain its value.
- War or political crises: War and political upheaval have always sent people into a gold-hoarding mode. An entire lifetime’s worth of savings can be made portable and stored until it needs to be traded for foodstuffs, shelter or safe passage to a less dangerous destination.
Unlike gold, the price of silver swings between its perceived role as a store of value and its role as an industrial metal. For this reason, price fluctuations in the silver market are more volatile than gold.
So, while silver will trade roughly in line with gold as an item to be hoarded (investment demand), the industrial supply/demand equation for the metal exerts an equally strong influence on its price. That equation has always fluctuated with new innovations, including:
- Silver’s once predominant role in the photography industry—silver-based photographic film—which has been eclipsed by the advent of the digital camera.
- The rise of a vast middle class in the emerging market economies of the East, which created an explosive demand for electrical appliances, medical products, and other industrial items that require silver inputs. From bearings to electrical connections, silver’s properties made it a desired commodity.
- Silver’s use in batteries, superconductor applications, and microcircuit markets.
It’s unclear whether, or to what extent, these developments will affect overall non-investment demand for silver. One fact remains: Silver’s price is affected by its applications and is not just used in fashion or as a store of value.
Like gold and silver, platinum is traded around the clock on global commodities markets. It tends to fetch a higher price than gold during routine periods of market and political stability simply because it’s much rarer. Far less of the metal is actually pulled from the ground annually.
There are also other factors that determine platinum’s price:
- Like silver, platinum is considered an industrial metal. The greatest demand for platinum comes from automotive catalysts, which are used to reduce the harmfulness of emissions. After this, jewellery accounts for the majority of demand. Petroleum and chemical refining catalysts and the computer industry use up the rest.
- Because of the auto industry’s heavy reliance on the metal, platinum prices are determined in large part by auto sales and production numbers. “Clean air” legislation could require automakers to install more catalytic converters, raising demand. But in 2009, American and Japanese car makers started turning to recycled auto catalysts or using more of platinum’s reliable—and usually less expensive—sister group metal, palladium.
- Platinum mines are heavily concentrated in only two countries—South Africa and Russia. This creates greater potential for cartel-like action that would support or even artificially raise platinum prices.
Investors should consider that all of these factors serve to make platinum the most volatile of the precious metals.
Lesser known than the above 3 is Palladium, which has more industrial uses. Palladium is a shiny, silvery metal used in many types of manufacturing processes, particularly for electronics and industrial products. It can also be used in dentistry, medicine, chemical applications, jewellery, and groundwater treatment. The majority of the world’s supply of this rare metal, which has the atomic number 46 on the periodic table of elements, comes from mines located in the United States, Russia, South Africa, and Canada. Jewellers first incorporated palladium into jewellery in 1939. When mixed with yellow gold, the alloy forms a metal stronger than white gold. In 1967, the government of Tonga issued circulating palladium coins touting the coronation of King Taufa Ahau Tupou IV. This is the first recorded instance of palladium used in coinage.
Metalworkers can create thin sheets of palladium down to one-two hundred fifty thousandth of an inch. Pure palladium is malleable, but it becomes stronger and harder once someone works with the metal at room temperature. The sheets are then used in applications like solar energy and fuel cells.
The largest industrial use for palladium is in catalytic converters because the metal serves as a great catalyst that speeds up chemical reactions. This shiny metal is 12.6% harder than platinum, making the element also more durable than platinum.
Buy precious metals at 15% discount
Since 2009 Auvesta have specialised in the purchase, sale and storage of physical gold, silver, platinum and palladium. Auvesta is an international company and one of the leading suppliers of precious metals and coins. With the Auvesta Online Depot you can save, buy, sell and store physical precious metals. Their flexible savings plans do not have a maturity, a purchase commitment and there are no notice periods.
You can see more about the company here: Auvesta.
Free gold if you refer others
With Auvesta you can earn gold, silver, platinum and palladium just by referring other people to their savings plans. All you need to do is register for an account by clicking here and set up a depot, verify your identification and start saving precious metals of a minimum of 25 Euros per month. You can see this short recording that explains what and how you can earn your free metals. Just click here, then enter your name and email address to gain access. Once you have set up a depot, I will email you with more information and access to free and full support should you wish to use this opportunity to build an extra income stream or full time business.