Precious metals are rare, naturally occurring metallic elements valued for their beauty, scarcity, and economic importance. Known for their durability and resistance to corrosion, metals like gold, silver, platinum, and palladium have been used for centuries in jewelry, currency, and industry.
Today, they play a vital role in global finance and investment, often serving as a hedge against inflation and market volatility. Understanding what qualifies as a precious metal and its various uses is essential for collectors, investors, and anyone interested in the world of valuable resources.
A precious metal is a rare metal that occurs naturally. There are eight main kinds of precious metals traditionally used as investment assets. Silver and gold are the most popular — the other six are part of the platinum group and similar metals. Let’s take a look at them.
- Gold: Gold is one of the most well-known and sought-after precious metals, prized for its rarity, durability, and timeless appeal. As a chemical element, it is highly resistant to corrosion and tarnishing, which has made it a symbol of wealth and power throughout history. Its unique properties, such as malleability and conductivity, also make it valuable in various industries, from electronics to jewelry. In addition to its practical uses, gold holds a strong position as a safe-haven asset, often serving as a hedge against inflation and economic instability, making it a popular choice for investors.
- Silver: Silver is most often used to make jewelry, conductors, and other electronic components. It’s one of the most popular precious metals to invest in, though it historically hasn’t been as steady in terms of its performance over time, but it’s much more volatile than gold.
- Platinum: Platinum can sometimes be used for expensive jewelry, but it’s also an important component in catalytic converters for cars, some types of medications, LCDs, and spark plugs.
- Palladium: Palladium is used a lot, just like platinum. However, palladium investments usually include other metals because it’s so rare.
- Rhodium: Rhodium is mostly used in the aerospace and chemical industries. It’s extremely rare and expensive, so it hasn’t always been viewed as the most stable investment option. But it’s worth considering for investors who want to diversify their portfolios with something a little different (so long as they can afford it).
- Ruthenium: This one is much rarer than gold, silver, platinum, and palladium. It can be used to coat other metals to give them extra shine and protect them from scratches and corrosion. But like many platinum-group metals, it’s mostly used in the automotive industry to make catalytic converters.
What exactly makes precious metals rare and appreciated by consumers and industries alike? There are several factors, including the following:
Geological Conditions
Metals — especially rare metals — aren’t available everywhere in the world. Depending on their location, only certain mining companies may be able to access them. If only a few mining companies can access a type of precious metal, they can control the price.
Mining and Extraction Process
Sometimes, mines produce more or less of a given type of precious metal. If a mine is less productive than normal, there might be a supply bottleneck. In this scenario, prices may increase. Likewise, if mines produce more of a metal, prices may drop for a time.
The complexity of mining and extraction can also shape the value of a metal. For instance, if the process of obtaining and purifying it is lengthy or difficult or requires specialized equipment, the metal might be more expensive.
Relationship with Global Economy and Market Demand
What are precious metals worth? The answer depends in part on how in demand they are.
For example, platinum and similar metals are an important part of catalytic converters. During the COVID-19 pandemic, the manufacturing of cars dropped considerably from a combination of a worldwide slowdown in the industry and a lack of raw materials. There was less demand for metals in the platinum group, so prices fell.
We can’t predict what will happen in the future with precious metals prices — as COVID-19 showed us, anything is possible. That’s why it’s so important to do your due diligence before investing and not play with money you can’t afford to lose. Precious metals can dip in value just like any other asset class.
Role of Precious Metals as a Historically-Steady Asset Class
Steady assets have typically maintained a certain level of consistency during inflation or economic turmoil — sometimes, in fact, their value increases.
Understandably, smart investors have diversified their capital during market downturns in ways that add a layer to correlated assets. As a result, metals that have traditionally held steady value tend to be popular choices.
Gold is a great example. Of all the precious metals, it’s historically been one of the best hedges against inflation and other turbulent economic times, even though its practical uses have become more limited over the centuries. For this reason, it’s arguably been the top choice for investors interested in diversifying with precious metals.
These investments can be a great way to round out and add diversity to your portfolio. Here are some traditional aspects of investing in precious metals:
- Usually solid long-term investments
- Can buttress your correlated assets during inflation
- They aren’t generally tied to other asset classes, so they have performed steadily even when others take swings
- In demand due to rarity
You shouldn’t invest everything in precious metals, just as you shouldn’t sink all your resources into any single investment type. The smartest investors understand that only a portion of their savings should be held in a precious metals IRA.
No investment type is without risks. Here are some potential downsides to investing in precious metals.
Comparing risks and benefits is an essential part of making sound investment choices. If you’re new to the investment world, an experienced financial adviser can help you weigh the pros and cons and decide whether a given investment is right for you.
If you want to ensure a smooth procedure, you’ll need to take a few things into account.
Evaluate Your Risk Tolerance
Take a look at what risks you’re willing to take. All precious metals have different risk profiles. Make sure you investigate each one before choosing to invest in it.
Create Clear Investing Goals
If you don’t know what you want to achieve, it will be hard to come up with a good investment strategy. Talking to an investment adviser can help you develop clear goals. Once those goals are set, you’ll be able to decide what types of precious metal investments you want to pursue.
Decide How You Want to Invest
There are many different ways to invest in precious metals. One option is to actually buy physical metal, usually in the form of bars or bullion coins. Exchange-traded funds (ETFs) can make investments as well. Futures are riskier, and you should not invest in them without speaking to a trusted advisor first. Some investors also choose to invest in mining stocks.
Decide What You Want to Invest In
Once you have set goals and know your risk tolerance after speaking with a trusted advisor, you can choose one or more metals to invest in. Popular precious metals like gold and silver usually offer the most options.
Precious metals have been a great choice for smart investors looking for an alternative investment to diversify their portfolios. Best of all, there are several precious metals out there, each with its own risk profile, so interested investors have the opportunity to educate themselves on several different options.
Frequently Asked Questions
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The five primary precious metals are gold, silver, platinum, palladium, and rhodium.
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Platinum is rare because it is found in very limited quantities in the Earth’s crust—about 30 times rarer than gold. Its extraction is complex, requiring extensive mining and refining, often as a byproduct of nickel or copper mining. Additionally, most platinum production is concentrated in a few countries, mainly South Africa and Russia, which adds to its scarcity.
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Platinum is not always worth more than gold. Historically, it often traded at a premium due to its rarity and industrial demand, but in recent years gold has frequently been more expensive. Prices fluctuate based on supply, demand, and market conditions, so the value comparison changes over time.