Precious metals have always been desirable possessions. However, when markets are rising, investors often step away from these assets and choose stocks or other less concrete investment forms. Oddly enough, while today’s markets continue to rise, people are still flocking to precious metals. Not only that, but also many large institutions and even governments are snatching up reserves of these metals. The reasons behind these moves are not that mysterious.
Why Invest in Precious Metals?
There are many reasons to invest in these metals at any time and in any economy. Some reasons carry greater urgency than others at different historical points. Nevertheless, there is a growing consensus among buyers that these assets are good purchases in certain amounts at any given moment.
• The Historical Reason
There is a psychological backing to investment in these metallic commodities. The subconscious regard, which most people have for precious metals, has a lot to do with the long history, which these metals have in human society. Precious metals were discovered so long ago that they predate history itself. People probably loved these ores for their pretty color but they were also desirable for their malleability. Gold can be easily hammered into various shapes without heating it. Silver is very ductile and takes advantageous wire shapes that early people used in jewelry and art.
Ultimately, gold and silver became the underlying substances used as currency. This happened around the world in virtually every culture. Essentially, this memory hangs on in cultures and supports the high values of these metals. In fact, gold and silver were used as currency or backed paper currencies well into the 20th century. Today, they are still issued by various nations as legal tender but in reserved quantities that people really use for investment purposes rather than as actual spending money. Platinum and palladium have more recently joined gold and silver as currency metals.
• Industrial Demand
As the modern age dawned, people discovered that there was more to gold and silver than their pretty luster. Some of the same qualities that attracted primitive peoples to these metals now held new attractions. Additional discoveries about their properties brought even more interest.
For example, gold is very resistant to corrosion in addition to being malleable. Early industrialists discovered that this precious metal is also one of the best natural electro-conductors in the world. These qualities combine to make gold an ideal component in electric and electronic devices. For that reason, minute quantities of gold are found in almost all mobile devices and computers. Though the quantities are small, the high value of gold means that each such device can hold as much as a dollar’s worth of gold in its electronic guts.
Silver also has exceptional qualities as an electro-conductor and is also resistant to corrosion. Moreover, its ductility allows manufacturers to craft wire shapes with this metal to make important electronic contacts that maintain their physical integrity.
Platinum is another precious metal that has important uses in industry. Not discovered until a few centuries ago, it is similarly resistant to corrosion and conducts electricity well. About one-third of the platinum extracted from mines every year is immediately put to use in making catalytic converters for automobiles and other devices that use combustion engines.
These qualities, found almost entirely in precious metals and not anywhere else, have solidified support for the value of these assets in the last century. As incomes rise in the developing world, people look to acquire more of the things that have become commonplace in higher-income nations, such as computers and cars. Demand for the precious metals which make these products possible only continues to go up.
Inflation is the king of all reasons to invest in precious metals. They are known as hedges against inflation and have been so known for decades. The reason for their power against inflation is pretty simple.
Until the middle of the 20th century, most currencies were tied to the value of gold or silver. When a government issued paper bills, the holders of such bills had the right to redeem those bills for gold or silver. This right was rarely exercised but its reality forced governments to think carefully about economic measures that essentially amounted to money printing. For example, running constant budget deficits or bailing out industries with quantitative easing amounts to inflation in the long run, even if the government is not necessarily running off sheets of bills at the printing presses.
Now that most currencies are not bound to anything concrete, their value is hard to keep in place. There is no doubt that the US dollar has lost a lot of purchasing power over the last decade. However, if you look at the prices of gold, silver, platinum and other precious metals over the same period, you will see that they have all climbed considerable heights.
The price of gasoline allows for an excellent example. If you had been in the habit of buying your gasoline with gold ten years ago, you would not pay any more for a gallon of gas now than you did then. In fact, it would cost you less gold to buy that gallon of gas today.
The Precious Metals
If this spurs you to invest in precious metals, you should first make yourself aware of the varieties available in this corner of the market. While gold gets most of the headlines, there are actually several members of the precious metal family.
This is the most popular of the precious metals. Gold is known for its luster, its malleability and its electro-conductivity more than anything else. It is treasured by cultures worldwide. At present, it sells for around $1,600 per ounce. It has performed excellently over the last decade, climbing from a value of just $270 per ounce to values above $1,900.
This is the often-forgotten cousin of gold. Sometimes newcomers make the mistake of overlooking silver because it is not worth as much per ounce as gold. However, as a low-priced asset, silver has a lot of upside. This becomes more apparent when you look at the historical relationship between gold and silver prices. Many investors right now are keeping their eye on silver because it normally has a much stronger ratio when compared to the gold price. At present, silver is maintaining a price-per-ounce of about $29.
This metal is initially overlooked by many investors because it is not even known to them. This slightly more obscure precious metal is actually worth more than gold on a regular basis, though for the past few years it has maintained prices just below those of gold. Many nations are now using platinum to make coins and bars for sale.
There are a whole handful of precious metals in the platinum group. Most of them are worth more than silver but not as much as gold. They have a variety of uses in industry. Due to the growing and global desire for precious metals, palladium has emerged from obscurity and become a source of interest for nations seeking more options in their precious metal coin minting. The present-day price of palladium hovers between $700 and $800.
Precious Metal Assets
If you want to invest in these metals, you have several options. Most precious metals are available as coins and bars. Palladium is being treated experimentally right now by a few nations and can only be found in bullion coin form in small numbers.
Many investors prefer coins made from precious metals because they are very liquid. However, if you wish to buy precious metal coins, you should be aware that their prices are always well above spot price. This is due to the cost of design and manufacture. As long as you maintain the coins well, you should not fear that they would lose this additional value. An example of a common and globally valued gold coin is the American Gold Eagle.
Some people are intimidated initially by the idea of bars made from precious metals. They do not have to be large, though. Companies such as Credit Suisse issue bars that are even smaller than one ounce. This is fortunate for investors of lesser means because platinum and gold are so expensive that the traditional kilogram bar would cost tens of thousands of dollars.
There are additional ways to invest in precious metals. You can also buy stocks associated with the mining of these metals or invest in exchange-traded funds. However, the best way to secure your wealth is in the physical ownership of quantities of these metals.