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Are you thinking of investing in precious metals?
For centuries, people consider silver and gold to be valuable metals. They've long been sought after and even today they have a place in any investment portfolio. The trick is knowing which precious metal to invest in for your circumstances.
That's where we come in!
Keep reading for our guide on why you should be investing in precious metals today.
Types of Precious Metals Worth Investing In
So, what are precious metals? What should you be investing in? Before we say why precious metal investing is a good idea, we'll go through the metals.
Let's start at the one we're all most familiar with: gold. For centuries people favored gold for its unique qualities like:
- Durability (it won't corrode or rust)
- Conduction ability (both electricity and heat)
- Malleability (easy to melt down and shape)
Today, it's used in many industries like electronics and dentistry. But it's most known for jewelry and being a form of tradeable currency.
The market determines the value of gold 24 hours a day, 7 days of the week. It usually trades as "a function of sentiment". This means its value isn't affected by supply and demand as much.
The size of a new mine's supply can't compete with the size of gold already hoarded above ground. If a gold hoarder wants to sell, the price will drop. If they're buying, that new supply gets sucked up fast and prices go higher.
Hoarders may decide to increase their treasure trove due to several reasons, including:
- National financial concerns: When money and banks seem unstable, gold has safe value.
- Inflation: If bonds, real estate, and equity rates hit the negative, people buy gold as it holds its value.
- Political crisis & war: If needed, whole life savings can become portable to store or take away. People can then trade it for food, shelter, and other essentials.
Due to its stability and ability to maintain its value without major drops, gold is well sought after. It's a solid option to consider when you're looking into investing. Its long history of being a traditional investment makes it a "safer" bet.
Silver is a little more volatile. Its price will swing between its worth as a stored value and how useful it is as an industrial metal. Because of this, you'll see more price fluctuations than you would with gold.
Silver still trades in line with gold as a metal worth hoarding. But, the laws of supply and demand play a bigger role in influencing its price. You'll usually see the strongest price fluctuations as new products and innovations emerge. For instance:
- Photography: silver film was once the height of photographic technology. Prices soared due to its demand but now digital film has eclipsed it.
- Rise of the middle class in Eastern markets: this created a huge demand for electrical goods. Not to mention other industrial items that need silver.
- Its properties: It's a superior material for things from bearings to connections. It's used in superconductors, microcircuits, and batteries, to name a few applications.
It's not easy to predict the extent of how new developments affect the price of silver. The only clear thing is it's affected by how it's used. Its price isn't dictated only by how fashionable it is, or its stored value.
Platinum, like silver and gold, is a metal that's traded 24/7 on the global market. In periods of stability, it often commands (per troy ounce) a higher price than gold.
This is due to the fact it's a rarer precious metal. Each year, much less platinum gets pulled from the ground than gold. Other factors that determine its price include Its industrial demand.
Like silver, platinum has industrial uses such as car catalysts. These parts reduce the harmful emissions a car releases. After that, jewelry is the second most sought-after use for platinum. Petroleum & chemical catalysts and computer parts make up the rest of that demand.
Due to the auto industry's heavy demand for this metal, auto sales and product numbers play a big part in the price. "Clean air" laws see car manufacturers need to install more, better catalytic converters. In turn, this will raise the demand for platinum.
From 2009 though, car manufacturers started to rely on recycled catalytic converters instead. They also turned more towards a more reliable, cheaper sister metal called palladium.
There is also the fact that only Russia and South African have a heavy concentration of mines. This opens up the market to more risk of cartel-like control. In turn, this could see an artificial increase in platinum prices.
Because of these factors, platinum is the most volatile of the precious metals. You'll need to consider these factors and talk with your advisor in detail about if it's a good option for you.
Palladium is newer and less well-known than the three options above but it has more industrial use. It's a silver shiny metal and used in many industries' manufacturing processes. Its most common applications are in industries such as:
- Industrial products
- Groundwater treatment
Like platinum, it's a very rare metal but the mines are less concentrated. Most of the mines come from South Africa, Russia the USA, and Canada.
For jewelry, it was first used in 1939. Once mixed with yellow gold, the alloy produces a stronger metal than white gold. With regards to currency, the first use was in Tonga in 1967 to mark the coronation of King Taufa'ahau Tupou IV.
Palladium in its pure form is very malleable. But, once it's worked at room temperature it'll become harder and stronger. Skilled metalworkers can get sheets as thin as 1/250,000 of an inch. These sheets are often used in fuel cells and solar power units.
As already stated, the biggest demand for palladium comes from car catalytic converters. As a great catalyst, it speeds up the needed chemical reactions. It's also 12.6% more solid than platinum, making it a more durable option.
Why You Should Invest in Precious Metals
Each portfolio is different, so it's always best to talk with your portfolio manager first. But now we've looked into the types of precious metals most people invest in, let's look at why you should do it.
1. Low Entry Barrier
While stocks are an exciting investment, most of the time you need to use a broker to buy and sell them. There are a bunch of forms and other hurdles to jump through too. Don't even get us started on the paperwork involved with real estate.
With precious metals, there is no red tape for buying and selling. Buying silver, gold, and other bullion is much like buying a t-shirt in a store or a new computer from Amazon. It's a tangible item you can own and hold.
2. Protect Against Inflation
There is a lot of truth to the saying that "the dollar isn't worth what it used to be". Whoever coined that (no pun intended) was onto something. Think of how the price of gas, energy, and groceries keep rising.
As the dollar and other currencies get weaker, silver and gold hold their value steady. This is good because when the dollar falters, you'll sill gold and silver prices rise through the roof. Time and again, precious metals hold a solid course when the economy hits troubled waters.
3. It's Tangible
If you own shares in companies unless you have the majority, you're don't have much power. If you don't own property mortgage-free, do you even actually own it? No, you don't, it still belongs to the bank.
When you buy precious metals, they're all yours. Even if they're part of an IRA (individual retirement account), they're still yours to own.
You can sell when you want or pass it down to your children, whatever you see fit to do. Not much beats the feeling of owning a tangible asset and the security that brings.
4. It's Timeless
There are investments today that weren't around 50 years ago, even 20 in some cases. Take cryptocurrency as a prime example. In comparison, silver and gold have held a place in human desire for at least 5,000 years, perhaps longer.
Some investments will come and go. They're coming in and out of fashion as randomly as the winds of change and innovation dictate. But gold and silver aren't disappearing anytime soon.
They're too important in industry, jewelry, and the arts, so the place of precious metals is solid. No matter what, they'll always present an asset that's desired for its value.
5. Liquidity is High
You can invest in anything, but the key is getting a good return on that investment. Often, it's complicated to sell off your investments, think of real estate for example. It can be hard to sell in instances like:
- Fading cities losing their population
- Areas that lost beautiful scenery to development
- Areas with a large spike in crime
- Increased poor air quality and pollution
You could face the possibility that you won't get the money for that property that you paid for it. If you can even find a buyer for it in the first place.
Gold and silver are different, there are always buyers for those assets. Whether the economy is bad or good, you'll always get plenty of demand, at a good price too. This makes the liquidity of precious metals very high.
6. A Great Chance to Diversify Your Portfolio
Another good saying to keep in mind is not putting all your eggs into one basket. This applies to precious metals and any investments you make. You don't want your whole portfolio to consist of only one asset type and should always try to diversify your investments.
A huge strength of gold is it's a non-correlated asset. This means its price moves on its own. It's not reliant on other investment markets like bonds and stocks. As such, adding gold (or other precious metals) to your portfolio makes it truly diverse.
7. It's a Safe Bet
Precious metal as a whole is a safe investment. There are risks with everything (e.g: platinum), but gold and silver are safe havens. Safe haven investments give stability when the economy is stressful and turbulent.
Even when the economy tanks, gold, and silver hold their value. In some cases, they even rise. They're free from the meddling of government that otherwise could impact value.
How to Invest in Precious Metals
If you want to invest in precious metals, here are the options you can choose from. Some are better than others, and it will depend on your portfolio which will work best.
Most will say that coins and bars are the best way to invest in precious metals. But, you need a safe place to keep them like a vault, safe, or deposit box.
If you're expecting the worse from the economy, then it's your only option. If you're an investor with more time on your hands, they can be harder to handle. They're not as liquid and can be annoying to hang onto.
ETFs (Commodity Exchange Traded Funds)
ETFs exist for the big three precious metals (gold, silver, and platinum). They're convenient and stay a liquid way to buy and sell precious metals.
But, investing in ETFs doesn't give you tangible access to physical metals. You have no claim in any metal that makes up that fund. So, don't expect any gold or silver bars to arrive at your door.
Certificates give you the benefits of owning tangible precious metals. But, you don't have to worry about the hassle of transporting and storing it.
If you want insurance for very troubled times, certificates are only paper. You likely won't find much worth in those certificates themselves if times got very hard.
Common Stocks and Mutual Funds
To encourage movement, there is leverage on precious metal mine shares. There can be big money here if you know how the market values mining stocks. If not, it's safer to go with funds with managers that have a good record of performance.
Options & Futures
This is one of the riskiest options. The options and futures market gives investors a chance to make big bets. They offer leverage and liquidity for those willing to risk it.
But, there is no chance of knowing what will make it big and what will fail. So, there is the biggest margin for profits (and losses) in this area.
Investing in Precious Metals Made Easy
So, there you have it! Now you know these reasons for investing in precious metals, you're ready to get started.
When done right, precious metals offer high liquidity and a stable way to branch out. Silver and gold offer safety in times of economic trouble and give some security. But, each portfolio is different, and you should always discuss it with your advisor.
If you're looking to get your precious metal portfolio started, contact us today. At Sprott Money Ltd, we value trust as the most precious commodity of all. Our knowledge and expertise can guide you, and give you the peace of mind that you're making a great investment.