5 Top Precious Metals You Can Invest In: All You Need to Know About Investing in Precious Metals
Advice
The lure of investing in precious metals is obvious – adding some metallic shine to your portfolio can not only make it more alluring but also lead to diversification and downside protection during economic downturns – after all, these are “tangible” assets, right?
Like most things worthwhile, it is not that simple. Investing in precious metals isn’t as straightforward a process as say investing in the stock market or mutual funds, easily achievable by enlisting the help of discount brokers and robo advisors. So in this article, we will demystify the process of investing in precious metals for your understanding. Let’s dive right in!
Table of Contents
First off, there are many reasons to invest in precious metals:
If you’re not familiar with investing in precious metals, you might assume it’s all to do with gold and silver. However, there are numerous precious metals that are traded every day + some “base” metals that are important to know about too.
Let’s dissect them one by one.
Biggest producer: China
Biggest consumer: China and India
Current price: ₹46,220 ($615) (as of June 8th 2020, for 24 Carat Gold in New Delhi, India)
The yellow metal is one of the best- and oldest-known commodities out there. Gold has captivated human beings for generations (click here to read a brief history of gold). We all are familiar with gold’s usage in jewellery, but it is also significant in industry, where its inertness, ductility, durability and malleability are highly coveted.
For a long time, gold was the commodity on which the value of paper currency around the world was based on (the Gold Standard). Even today, central banks around the world store gold as part of their foreign exchange reserves. Gold also finds industrial applications in many areas like electronics, dentistry, computers, aerospace, GSP systems, glassmaking etc.
Biggest producer: Mexico
Biggest consumer: India
Current price: ₹47.42 ($0.63) (as of June 8th 2020, for 1g of silver in India)
While gold’s industrial usage drives only 10-15% of its demand, for silver that number is more than 50%. Silver is renowned for its strength, ductility and malleability and is used in many fields from pharmaceuticals and purifying water to nuclear reactors and battery manufacturing.
Biggest producer: South Africa
Biggest consumer: China
Current price: ₹1,989 ($26.45) (as of June 8th 2020, for 1g of platinum in India)
The greatest demand for platinum comes from the auto industry, where automotive catalysts are used to reduce the harmfulness of emissions (as the push for clean energy accelerates, demand for these catalysts is gathering steam). Other industrial applications of platinum are in petroleum and chemical refining, dentistry, laboratory equipment and the computer industry.
Biggest producer: Russia and South Africa
Biggest consumer: North America
Current price: ₹4,811 ($64) (as of June 8th 2020, for 1g of palladium in India)
Palladium’s industrial usage is found in electronics and industrial products, medicine and groundwater treatment.
Biggest producer: South Africa
Biggest consumer: China
Current price: $228.27 (as of June 8th 2020, for 1g of rhodium)
Rhodium has been hailed as the “world’s most precious metal” because of its steep increase in value in recent months. In 2019, its prices soared 151%. And in the last four years, rhodium's price has risen by 12x. Just like platinum, rhodium’s industrial application is predominantly in the auto industry.
The precious metals with active commodities markets include gold, silver, platinum and palladium. Besides them, there are other precious metals that are used in industry and/or jewellery like ruthenium, osmium, iridium, rhenium and indium. Some alloys also exist that are mixtures of two or more precious metals. An example is electrum, a naturally occurring alloy of gold and silver.
Base metals are the common and inexpensive brethren of precious metals. They are found easily and are relatively cheaper. But they too have a wide array of industrial uses, and many of them are actively traded in commodities markets. Alongwith precious metals, you can add some base metals to your investment portfolio to diversify it further.
Some examples of base metals are aluminum, copper, iron, zinc, lead, nickel, steel and tin.
You can invest in precious metals in two ways:
This investment window is strictly for those willing to invest in storage alongwith purchasing the precious metal in question. In India, physical quantities of precious metals like gold and silver can be bought from jewellers, banks, non-banking finance companies and even e-commerce websites.
PS - Physical gold and silver of high purity that is often kept in the form of bars, ingots (blocks) or coins are referred to as “Bullion”.
If you don’t have a private safe or bank vault to store bars and coins in (which is usually the case), you might be interested in hedging your money on precious metals via more convenient and indirect ways i.e. Via financial products. These methods don’t imply actual ownership of the metal so no physical delivery is involved.
The demand for precious metals is something we can count on to remain relatively high - people will never stop wanting to possess jewellery and engineers will continue to use these metals in various applications. But while demand continues to surge, the supply of these metals is limited. They are, after all, nonrenewable resources. As the world’s remaining reserves of precious metals are mined, there could come a day when all existing channels are depleted. This drives investment into finding untapped sources of these metals and alternative ways of producing them.
The mining industry’s track record of environmental abuse and human rights violations in developing countries across Asia, Africa and Latin America is well-documented. Calls to more tightly regulate their activities will impact the companies’ operations and therefore the metals’ prices. On the other hand, several precious metals are vital for green and clean energy infrastructure, especially in emission-reducing equipment in the auto industry and the renewable energy sector. As the world moves towards unconventional sources of energy like solar, hydro and nuclear, demand for these metals can be expected to rise.
Precious metals’ relationship with the larger market varies individually. For example, gold can have an inverse relation i.e. Its price can rise when other market indices are in turmoil due to its status as a safe haven asset. But other metals are more susceptible to demand pressures and hence market volatility. For example, silver is more intricately linked to economic activity due to its widespread industrial uses. And rhodium’s recent price durge can be linked to new emission controls and rising demand for autocatalysts.
The impact of the coronavirus pandemic on the precious metals market is complicated. You would expect that a rise in economic instability would see investors rushing to these safe haven assets but there’s more to it than that. For starters, you can’t mine or refine precious metals while social distancing! In recent weeks, silver and platinum prices have plummeted while gold, palladium and rhodium have surged (this difference in reaction can be explained by these metals’ relationship with larger market trends i.e. The point above). For base metals, the impact has been overwhelmingly negative since their value is intricately linked to industrial activity. Nonetheless, precious metals are expected to overcome the pandemic’s negative effects and in fact benefit from the financial uncertainty - the World Bank in its Commodity Markets Outlook (Page 3, Table 1) has revised upward the forecast of precious metal prices for this year and the next.
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