Tuesday, March 15, 2022

A Beginner's Guide to Precious Metals


Gold and silver are recognized as precious metals and have been popular for a long time. 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 like gold, silver, and platinum, and there are many good reasons why you should go on a treasure hunt gold ira companies reviews. So if you're just starting out in precious metals, read on to learn more about how they work and how you can invest in them.


Key takeaways

  • Precious metals can be well diversified and protected against inflation, but gold, the most famous metal of its kind, is not the only one available to investors.
  • Silver, platinum and palladium are commodities that can be added to your precious metals portfolio, each with their 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.



Let's start with all of dad'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 mainly know it as a base for jewelry and as currency.

The value of gold is determined by the market 24 hours a day, seven days a week. Gold trades primarily 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 strength above ground. Simply put, when the carriers sense 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 an increased 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 after as a safe haven for value.
  • Inflation: When real rates of return in stocks, bonds, or real estate markets are negative, people often turn to gold as an asset that retains its value.
  • War or Political Crises: War and political unrest have always affected people in the form of a gold program. Lifetime savings value can be made portable and stored until it needs to be traded for groceries, shelter, or safe passage to a less dangerous destination.


Of money

Unlike gold, silver's price 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.

So while silver will trade roughly in line with gold as a deposit commodity, the industrial supply/demand equation has just as strong an influence on the price of the metal. This equation has always been volatile with new innovations including:

  • Silver's once-dominant role in the photography industry, a money-based photographic film, came with the advent of the digital camera.
  • Massive rise of the middle class in emerging market economies in the East, creating an explosive demand for electrical appliances, medical products, and other industrial goods that require cash inputs. From bearings to electrical connections, silver's properties made it a desirable item.
  • Silver use in batteries, superconductor applications and microcircuit markets.

It is not clear whether or to what extent these developments will affect overall non-investment demand for cash. One more fact: silver is influenced by its applications and is only used in fashion or as a store of value.




Like gold and silver, platinum is traded 24 hours a day on global commodity markets. It often commands a higher price (per troy ounce) than gold during normal periods of market and political stability because it is so much rarer. Every year much less metal is extracted from the ground.


There are also other factors that determine the price of platinum:


  •  Like silver, platinum is considered an industrial metal. The largest demand for platinum comes from automobile catalysts, which are used to reduce emissions damage. After all, jewelry is the most sought after. The rest is used by chemical and petroleum refining catalysts and the computer industry.
  • Due to the auto industry's heavy reliance on the metal, platinum prices are largely determined by auto sales and 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 auto 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.



Less well known is palladium than the previous three metals, which has more industrial uses. Palladium is a shiny, silvery 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.

Metal workers can create thin sheets of palladium up to two hundred and fifty thousand inches. Pure palladium is malleable, but it becomes stronger and harder when working with the metal at room temperature. The sheets are then used in applications such as solar power and fuel cells.

Catalytic converters are the main industrial use of 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.


Fill your deposit fund

We look at the options available to those looking to invest in precious metals.


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 silver coin.


Joint Stocks and Mutual Funds

Stocks of precious metal miners take advantage of price movements in precious metals. If you don't know the value assigned to mining stocks, it may be wiser to stick to funds with managers that have strong performance records.


Futures and options

Futures and options markets offer liquidity and leverage to investors looking to place big bets on metals. The greatest potential gains and losses can be made with derivative products.


Silver bullion

Tires and bars are strictly for those who have a place to store them as a safe deposit box or safe. Sure, for those expecting the worst, bullion is the only option, but for investors with a time horizon, illiquid and pesky bullion is absolutely fine.


Certificates give investors all the benefits of physical gold ownership without the transportation and storage. That said, if you're looking for insurance in a real disaster, certificates are paper only. Do not 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 you can't print anymore. They also offer serious "shake insurance" against financial or political/military unrest.

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 Metals Risks

Each investment carries its own set of risks. While they may carry a certain level of security, there is always some risk associated with investing in precious metals. Metal prices can fall due to technical imbalances (more sellers than buyers). That said, during periods of economic uncertainty, sellers take advantage of it, as prices rise.

The baseline

Precious metals provide a useful and effective way to diversify a portfolio. The trick to being successful with them is knowing your goals and risk profile before you jump in. The volatility of precious metals can be used to accumulate wealth. If left unchecked, it can go bankrupt.

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