Investment and Hedge Potential of Precious Metals

A precious metal is an organic chemical element highly prized by society. Typically, precious metals, such as gold and silver, have a high luster as well as a rich heritage of currency or currency backing. Today, however, precious metals are mainly seen as investment opportunities or fodder for industrial applications.

Gold Record
Of all precious metals, perhaps gold is most heavily valued. A common form of gold is three-nines gold in which 99.9% purity is present. Gold, alongside platinum and rhodium, holds the highest value per kilogram of all the precious metals.

In fact, gold should be considered as an investment opportunity right now for two reasons. Firstly, gold’s value has dipped nearly ten percent over the last six months. (1) Why is that good news for investors? Simply put, gold is bound to reclaim its previous high as it has done numerous times in the past. There’s another reason gold should be considered: gold bullion is seen as an excellent store of value over time.

Store of Value?
Precious metals, especially gold and silver, are viewed as hedges. What is a hedge? A hedge is an investment that seeks to insure or offset damages resulting from economic downturns. Gold is seen as a hedge investment because gold protects investors against economic downturns, such as the United States’ recent double-dip recession, and inflation.

Both gold and platinum are appraised based on fluctuating market values whereas silver is often viewed as a collectible. Ironically, this means that gold and platinum tend to have relatively stable valuations whereas silver’s value may precipitously rise or fall depending on the appraising of private collectors. In other words, gold and silver have different causes and types of market fluctuation.

Silver Record
Silver is usually viewed as a more affordable and niche precious metal than gold. Indeed, the London Metal Exchange appraises silver’s value at 11th, which is well behind palladium and gold.

Silver bullion is typically priced at less than 15% of gold’s value in kilograms. In fact, silver closed the month of January at approximately $32. (2) Silver, though, has outstripped gold’s increased valuation over the last ten years. To wit, gold has quadrupled in price since 2001 whereas silver has more than quadrupled in value over that same time period.

Investing in silver makes a lot of sense right now because of how well silver retains or exceeds its current value. With global markets seesawing at alarmingly frequent rates, silver is an excellent store of value. Silver is used in industrial applications, jewelry, coins, and collectible bullion. Silver is noted for its resiliency, convenience and malleability, which makes it a solid long-term investment and perfect for industrial applications.

Most investors know that a metal is deemed precious when it is rare. What perhaps isn’t known about silver is that over 90% of the world’s total supply of silver has already been mined and used via industrial applications. The silver that has already been mined and employed by industry can never be recovered. That said, the law of supply and demand dictates that fewer amounts of silver means a higher valuation of silver bullion. Indeed, the vicissitudes of silver over the last generation testify to silver’s increasingly rosy investment outlook.

Platinum: Tomorrow’s Gold?
The London Metal Exchange ranks platinum as the most valued precious metal. Platinum is worth about 20% more than gold per kilogram. Moreover, according to Monex, platinum closed the month of February close to its 2012 high of around $1700.

Platinum is considered a precious metal as well as a noble metal. A noble metal is resistant to heat and corrosion over long periods of time. As platinum is so resistant to wear and tear, it is often employed unalloyed in industrial applications. One such use is platinum’s indispensable utility in catalytic convertors, resistance thermometers and electrical equipment.

Why is platinum appraised at such a high price? About two centuries ago, Russia decided to use its abundant supply of platinum in platinum rubles. The highest concentration of platinum is found in Russia’s Ural Mountains. That said, when precious metals became more prized because of scarcity and industrial applications, platinum skyrocketed in price vis-a-vis the law of supply and demand. There was simply less platinum to go around, so platinum’s value increased overnight.

Due to platinum’s scarcity and valuation as a precious metal, perhaps now is the ideal time to invest in platinum bullion. Platinum is typically sold at 99.95% purity, and platinum has shown itself to be an excellent store of value. Platinum, overall, is very similar to gold in that platinum holds its value over time and is highly esteemed by Monex and the London Metal Exchange.

Palladium is valued between gold and silver according to the London Metal Exchange. Indeed, Monex reports that the one-year closing price of palladium is approximately $700, which places palladium squarely between gold and silver in terms of worth.

Palladium is in the platinum group. Platinum group metals, such as rhodium and ruthenium, are all highly valued as precious metals. Palladium, however, has a silver luster and a relatively fragile composition. Palladium has dozens of industrial uses, and it is heavily employed in groundwater treatment, dentistry and medicine. In fact, palladium is a key constituent of fuel cells, which produce electricity and heat by combining hydrogen and oxygen molecules.

Palladium is crucial to hundreds of industries around the world. Alongside palladium’s industrial demand, the scarcity of palladium heightens its value. Over half of the world’s palladium comes from Russia, but Russia is reluctant to disclose the exact amount of mined palladium. Such secrecy makes the value of palladium quite unstable. Palladium, perhaps more than gold and platinum, should be considered a more adventurous investment opportunity.

Palladium has demonstrated more market variability than gold or platinum. Perhaps palladium can be seen as a more erratic yet promising investment opportunity. Indeed, throughout 2012 palladium seesawed by more than 20% of its high value. What does all of this data mean? In short, palladium might be less ideal than gold or platinum as a hedge or long-term store of value. A hedge should be a stable investment source that keeps future losses at bay or at least offsets those potential losses.

Investment for the Future

Economists often note the difference between primary wealthy and tertiary wealth. Simply put, tertiary wealth is fiat money. Fiat money is incredibly unstable vis-a-vis the long-term stability of primary wealth or most precious metals. In other words, the value of gold is relatively stable and impervious to national or transnational economic downturns.

For instance, the European Union has experienced an incredible devaluation of its currency over the last decade. Over that same time period, gold has more than quadrupled in price! Moreover, after increasing in value, gold has maintained its high. Perhaps this is why gold, platinum and silver are such excellent investment opportunities right now.

All three of these precious metals have shown laudable resilience to market fluctuations, great stores of value and investment opportunities with huge upsides. Both the London Metal Exchange and Monex are trusted resources to gauge the value of precious metals, such as gold and silver.

In fact, Monex is a trusted seller of gold as well. Monex sells both gold coins and gold bullion. (4) Gold is typically sold by the kilogram, but Monex also offers 100 and 400 ounce gold bars. The premiums are kept low at Monex, so the price you pay is very close to the current market value.

Works Consulted

Investment and Hedge Potential of Precious Metals
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