Investing in Precious Metals – Guide 101

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All metals are not equal; some are more coveted than others. This is the story for precious metals which include gold, silver, platinum, and palladium. Right from ancient times, these items have been sought-after by kings and wealthy individuals. 

Over the years, they have moved from just being items possession, but also investment commodities. Many smart investors these days utilize these commodities to diversify their investment portfolios. Visit https://www.investopedia.com/ to learn why diversification is important. 

The fact that there is more than one precious metal might make it difficult for a beginner to decide on which one to invest in. Hence, our job in this article is to provide you with a basic guide to investing in precious metals. We will look at some key facts you need to know regarding gold, silver, and platinum. 

Important Information Regarding Precious Metals

In this section, we will discuss essential information regarding precious metals and how they affect investment choices. 

Gold

You cannot start talking about precious metals without listing gold first. This metal is known for its toughness in the sense that it does not corrode or rust. Hence, it can remain intact for years even underwater or buried. 

Apart from its durability, some other properties of aurum include its malleability and conductivity of electricity and heat. As a result of this, gold is used in electronics and dentistry. Despite these other uses, it is chiefly used as a currency form or jewelry. Its use as a currency form was what led to what was known as the gold standard. 

You might be interested to know what factors determine this precious metal’s value; we will tell you. The market for this item is open every day for 24 hours with sentiment being the driving factor that influences the value. Its price rises and falls based on the laws of demand and supply. 

The reason for the above is that the supply for newly mined gold is usually less than that of hoarded gold that is above-ground. Hence, gold will only drop in price when hoarders decide to sell, while the price will increase when they decide to buy. 

Reasons why Gold is hoarded

The following are reasons why gold is hoarded:

i. Financial system worries

Any slight perception of instability in the financial system either locally (within a country) or globally can lead to the increased hoarding of aurum. Click right here to find out more about companies that provide opinions and insights regarding the global economy and how to take advantage of the trends. 

The reason for this is that gold is regarded as an infallible haven during such troublesome times in the financial landscape. Hence, people choose to preserve their wealth through this commodity.

ii . Inflation

Another reason people hoard this shiny yellow metal is due to inflation. When the returns on other investments such as real estate, bond, or equity become negative, most investors rush to an asset known for its ability to retain its value.

iii. Political or War Crises

War or any form of political crisis can be devastating to the economy and has been the primary reason throughout history why people hoard gold. You can store your entire savings in this form and trade it for other items such as shelter, foodstuffs, etc.

Silver

Compared to aurum, argentum is the more volatile of the two. The value of this item is greatly influenced due to its varied industrial applications. Hence, while silver can also be hoarded which naturally affects its value; its industrial applications also provide a significant impact on its value. 

Industrial Applications that Influence the Value of Silver

The following are some of the industrial applications that influence the value of silver:

i. The use of silver in the production of photographic film

Once upon a time, silver was in great demand due to its use in making the photographic film. These days, the digital camera has made this demand obsolete which has, in turn, reduced the influence of the industrial demand for this item.

ii. Silver use in electronics, medical products, etc.

Many emerging global markets especially in the East have seen a surge in the demand from middle-class individuals and families for argentum. While they do not demand the commodity directly, the use of silver in electronics, medical products, etc. has once again influenced the value of this item.

iii. Its use in superconductor applications, microcircuit, and batteries markets

The above-listed markets have seen an increase in demand for these items which in turn has led to more demand for the silver metal. 

Therefore, from all indications, the value of silver is determined by its industrial applications more than just being a stored commodity.

Platinum

The trading market for platinum is also open every day for 24 hours. Its value per troy ounce is usually higher than that of gold when the political and market climate is stable. The reason for this is that this commodity is rarer than aurum. It is not extracted out of the earth in the quantity that gold is. 

Factors that Influence the Value of Platinum

The following are factors that influence the value of platinum:

i. Industrial applications of platinum

Just like silver, this metal has many industrial applications especially in its usage in creating automotive catalysts in automobiles. Apart from the automobile industry, the jewelry industry is another industry that influences the value of this precious metal. It is also used to refine chemical and petroleum catalysts. The computer production business also makes use of this item.

ii. Sales of Automobiles 

As we said above, platinum is used in copious quantities in the automobile industry. As result, the higher the sales of automobiles, the higher the value of platinum since it is used to make catalytic converters. Thanks to the legislation of clean air automobiles, most automakers might have to use more of these converters in their automobiles. 

Some carmakers use palladium rather than platinum to make the catalytic converters since the former is less expensive. 

iii. Concentration of platinum mines

Russia and South Africa are the only countries with a large concentration of platinum mines. As a result, this could lead to a sort of cartel whereby the price of the item can be raised at any time without any external influencing factor. 

Conclusion

Investing in precious metals is a good way to diversify your investment portfolio but you need a good understanding of this market before you take a plunge. Hence, the article above has provided you with basic information on the three main precious metals (gold, silver, and platinum) and how their price value is influenced.