When it comes to bullion investing, the type of metal is the most crucial factor in which you choose to invest. There are lots of metals, but not all can be an investment. Precious metals have significant economic value for various reasons, either being their value as currency or because of their rarity.
Precious metals are a good portfolio diversifier and a hedge against inflation. Gold is one of the most well-known precious metals, but it’s not the only option out there for investors. Silver, palladium, and platinum are all commodities that can be added to your portfolio – each with its own risks and opportunities.
Here are the types of investment-worthy precious metals and what you need to know about them:
When it comes to precious metal investment options, gold is the granddaddy of them all. This metal remains to be the most popular because of its durability and desirability. It’s also malleable and able to conduct both heat and electricity. It doesn’t rust or corrode, and it’s well-known mainly as a base for jewelry and as a form of currency. Gold is also recognized as one of the most secure stores of value in any asset you can invest in.
Apart from that, the gold market isn’t affected by the supply and demand of other assets, making it a safe investment in times of economic strife. The price of gold is less affected by the laws of supply and demand because the new mine supply is outweighed by the sheer size of above-ground, hoarded gold. This means that if the hoarders want to sell, the price drops. When they want to buy, a new supply is quickly acquired, driving gold prices higher.
Some factors account for an increased desire to hoard gold, such as:
- Inflation – When real rates of return in the equity, real estate, or bond markets are negative, people flock to gold as an asset that maintains its value.
- Systemic financial concerns – When banks and money are unstable or when political stability is questionable, gold has been sought out as a safe store of value.
- War or political crises – War has always sent the rich or the can-afford into a gold-hoarding mode. An entire lifetime’s worth of savings can be made portable and stored until it needs to be sold or traded for shelter, food, or a safe passage to a less dangerous place.
If you decide to sell your gold jewelry and other gold items, here are some of the common mistakes to avoid .
If gold is the most popular precious metal, silver is easily second. Silver has more industrial uses, so it’s valuable both as a currency and its industrial applications. It has the highest thermal and electrical conductivity of any element and has the lowest contact resistance.
Though it’s often viewed as the poor cousin of gold, its price usually goes along with that of gold. But unlike gold, the price of silver swings between its perceived role as a store of value and as an industrial metal. Because of this, price fluctuations in the silver market are more volatile than gold.
While silver trades roughly in line with gold as an item for hoarding, the industrial supply and demand equation for the metal has a big influence on its price. This is always affected by new innovations, such as:
- Silver-based photographic film – Silver once played a predominant role in the photography industry, but it has been outdated due to the advent of the digital camera and, later on, the smartphone.
- Other industrial applications – Silver is used in batteries, microcircuit, and superconductor applications.
- Rise of the middle class – The rise of the middle class in the emerging market economies in the East created a considerable demand for electrical appliances, medical items, and other industrial products that need silver to produce.
It’s unclear to what extent do these developments affect overall non-investment demand for silver. But still, silver isn’t just used for fashion or its store of value – it’s also affected by its applications.
If there’s a ranking on the “preciousness” of precious metals, platinum will top them all. It’s 15 times rarer than gold, but it’s a precious metal that many traders don’t often consider when investing because of its scarcity and rarity. It’s very malleable, non-corrosive, dense, and it’s more ductile than gold, silver, or copper. It also has remarkable corrosion resistance, making it usable in a wide variety of important applications like lab equipment and catalytic converters, which are widely used in the auto industry.
Like silver and gold, platinum is traded around the clock on global commodities markets. Often, it tends to fetch a higher price than gold during times of political stability and routine periods of the market simply because it’s rare. Less of the metal is actually pulled out from the ground every year.
This precious metal is also bullion that can be struck into coins or bars. During times of economic prosperity, its value also tends to rise. On the other hand, its value tends to increase in times of economic uncertainty. It’s the opposite of gold, making it the perfect complementary portfolio piece.
Other factors affect the price of platinum, such as:
- Demand – The greatest demand for platinum is from automotive catalysts, which are used to reduce the harmfulness of automobile emissions. Jewelry is next to contribute to the demand for this metal. The rest is used up by petroleum and chemical refining catalysts and the computer and medical industry.
- Auto sales – Because the industry relies on metal, platinum prices are primarily determined by auto sales and production numbers. The clean air legislation required carmakers to install more catalytic converters, which raised its demand. However, since 2009, American and Japanese carmakers started to recycle auto catalysts or used palladium – platinum’s reliable and less expensive sister group metal – which caused platinum demand to decrease.
- Scarcity of platinum mines – Platinum mines are mostly concentrated in two countries: Russia and South Africa. This makes a greater potential for a cartel-like action that can support or even raise platinum prices artificially.
If you plan to invest in platinum, consider all these factors as it makes it the most volatile of the precious metals.
Among the four investment precious metals, palladium is the least known but has the most industrial uses. This precious metal is shiny and silvery and is considered valuable because of its malleability, stability, and rarity under extremely hot conditions. It belongs to the elemental category called the platinum metal group, so it can function like platinum in other applications, such as catalytic converters. More than half of the palladium supply is used in this manner.
It’s also used in many manufacturing processes, particularly for industrial and electronic products, and in medicine, jewelry, dentistry, chemical applications, and groundwater treatment. When mixed with yellow gold, the palladium alloy forms a stronger metal than white gold.
Palladium is a highly investable precious metal, but it’s relatively new in the market compared to its counterparts. The first palladium coin was issued in 1966, while the official palladium bullion coin in the US was only released in 2017.
Several countries like Russia, South Africa, Canada, and the United States are the primary suppliers of this rare metal.