Precious metals are something many people crave. For some it’s a reflection of the performance on the podium, while for others may represent luxury and elegance when they step up on the red carpet. However, they provide investors with a means of preserving and increasing their capital.
Humanity has always been captivated and fascinated by precious metals. They have played a significant role in history due to their charm and unique characteristics. From ancient times till the present, these metals have been sought after and acquired by explorers, travelers, leaders, and collectors. These priceless metals were coveted for their aesthetic appeal and associated with authority and prosperity.
In the modern world investors are “collecting” this type of asset for a unique combination of diversification, wealth preservation, and growth potential. Knowing the basics of investing in precious metals is crucial for anyone looking to develop a diversified and strong portfolio, regardless of the level of experience. However, the truth is that investing in precious metals is not a one-and-done deal. When making a financial decision, a lot of factors need to be considered.
Here is everything you need to know about precious metals, including types, particularities and how to trade or invest.
How to Trade and Invest in Precious Metals - Quick Guide
- Research your assets – From physical assets to derivatives and from stocks to funds, there are multiple ways to invest in precious metals today.
- Define your strategy – trading lets you speculate on the price movement; dealing allows you to take ownership.
- Take your position – create an account with us to start investing in precious metals online.
What are Precious Metals?
Precious metals are uncommon metallic elements that, besides their practical uses, are valued for their ability to hold value. Coins made of gold and silver were the most widely used type of money until the Middle Ages, when paper money began to proliferate. They maintained their luster, both literally and figuratively, in contrast to most base metals, which eventually dull or alter in color. In other situations, the rarity and value of the metal make it precious for different reasons. The most well-known precious metals are those that resist corrosion and are utilized in investments, jewelry, and currency.
There are three main characteristics that make a precious metal valuable:
Scarcity
Since they are a physical asset that cannot be replenished naturally, precious metals are limited in terms of quantity. Moreover, it is difficult to obtain the metals. Mines must be opened, they need to be cleaned, tested, delivered, and manufactured. Their costs are influenced by both this labor-intensive procedure and each metal's restricted supply.
Physical Properties
Due to their distinctive physical qualities, including brilliance, malleability, and corrosion resistance, these metals are used for various purposes, including jewelry, industrial applications, and as a store of value.
High value on the market
Precious metals — like other commodities — are impacted by market swings. Market prices can change dramatically from day to day and hour to hour. For example, we can anticipate a precious metal's price to decrease if fresh sources are found for it. However, the price may increase if there is a greater demand for it.
In terms of investments, precious metals are a popular choice due to their ability to diversify portfolios and act as a store of value. They are especially valued as a hedging against inflation and in difficult financial times.
However, understanding the difference between how the metals are used, their economic sensitivities and technical characteristics can help you determine which precious metal investment may bring additional value to your portfolio.
Precious Metals List
In the past, some precious metals have been used as currencies. These days, the man purpose of trading and investing in precious metals is to improve portfolios’ diversification. Precious metals are frequently used by traders as an inflation hedge.
Given their unique qualities, they can be also used for a variety of purposes other than investing.
Although the lists can vary significantly from one source to another, the scientific community generally acknowledges the following precious metals list:
Gold
Gold, known for its exquisite yellow sheen, has been utilized in jewelry and money for thousands of years. Its many industrial applications in modern times contribute to the rise in demand for it. In terms of investment options, gold remains one of the most popular among metals. It is pliable, strong, and appealing. Mining and panning are used to separate it from the nearby rocks and minerals. South Africa, the United States, Australia, and China are the top producers.
Platinum
Another top precious metal on the list is platinum, which is renowned for being thick and non-corrosive. It has gained popularity due to its extreme malleability. The way this metal tolerates large levels of hydrogen is like palladium. Platinum was formerly more expensive than gold, but it has undergone an amazing price increase during the last ten years. However, because of palladium's widespread use in the automotive sector, platinum's value has decreased recently.
Silver
Silver has been a precious, valued metal since ancient times. It has the best thermal and electrical conductivity as well as the lowest resistance for contact among the other precious metals. Chile, Mexico, China, and Peru are the biggest producers of silver. As with gold, silver has been mined and coveted as a precious metal for thousands of years and has a high industrial demand. It was once considered more valuable than gold.
Rhodium
Often called "the most precious of precious metals" due to recent dramatic price hikes, it is also extensively used in electronics and auto manufacturing. Nonetheless, rhodium is more susceptible to price swings than most of the other precious metals due to its very limited market, with a production total equal to 1% of gold.
Ruthenium
Palladium and platinum are alloyed with ruthenium to boost hardness and resistance. It is widely used in the electronics industry and is an efficient method of plating electric connections. Similar to osmium, this valuable metal is typically utilized in alloys to increase durability and corrosion resistance.
Iridium
In addition to having one of the highest melting points of any metal, iridium is one of the densest. It can be used for jewelry as well as medicine. Although iridium is the most corrosion-resistant metal, it is also the most fragile (according to Wikipedia). The metal is derived from meteorites found in the crust of the Earth.
Palladium
Palladium is an expensive white-gray precious metal that is prized for its stability, malleability, and ability to withstand high temperatures. Because of its capacity to function as a catalytic converter, automakers rely on it to lower emissions. Its demand among investors and manufacturers has been steadily increasing over the last two decades.
Osmium
This metal, which is among the densest elements on earth, has a silvery-blue color. The melting point of this toughest, brittle metal is extremely high. North America, South America, and some regions of Russia are the main producers of osmium. It is employed to harden platinum so that it can be used for electrical connections and filaments.
Rhenium
Rhenium is another dense metal used to make turbine engines and added to nickel-based superalloys to boost heat resistance. In porphyry copper mines, rhenium is extracted from molybdenite and recovered as a by-product of the molybdenum processing. Russia, Chile, Canada, and the United States all mine it.
Precious metals list can also sometimes include other elements. Frequently, indium is on the list, while according to certain reports, scandium is a precious metal as well. Precious metal-based alloys are valuable and precious themselves. One such is electrum, a naturally occurring silver and gold alloy.
Are these the most valuable precious metals in the world?
It is challenging to determine which precious metal is the most valuable in the world due to their constantly fluctuating nature. Many people would undoubtedly think of gold, yet in terms of weight or value, it is not the most expensive material. For a while, palladium was more valuable than gold, and platinum was rarer than gold. Currently, gold is worth more than both combined and is perhaps the most valuable metal.
Theoretically, the most valuable metal globally is the one that has the most demand and the lowest supply. This should indicate that it is the most valuable or costly. This is subject to change as new supplies become available or as demand shifts.
Top 10 countries producing precious metals
Key Factors Influencing Precious Metal Prices
The global precious metals market, which includes gold, silver, platinum, and other metals, is a dynamic and intricate space that is impacted by numerous variables. These metals are highly valuable in a variety of industries, from finance to jewelry and manufacturing. They frequently serve as indicators of economic health as well as investors’ sentiment.
There are multiple factors that may have an impact on precious metal price, such as economic indicators, geopolitical and political concerns, supply and demand dynamics, investment patterns, and environmental and social considerations. To acquire insight into current market patterns and make informed forecasts concerning the future of precious metals, it is imperative that investors, industry stakeholders, and policymakers diligently research these elements.
Monetary policies and Dollar strength
Central banks exert significant influence on precious metals prices by setting interest rates and implementing monetary policies. Given this, a lot of investors keep a careful eye on these rules as a guide for more general market activity. Bonds and savings accounts become less appealing due to low interest rates, which makes gold and silver among other metals more appealing to investors.
Geopolitics
Geopolitical tensions can also result in large price changes that affect supply, demand, and price. This is especially true when these conflicts involve important countries in the precious metal market. Sanctions, trade disputes, international conflicts, and military confrontations can all cause supply chain disruptions or uncertainty, which is what makes investors turn to precious metals since they believe they are safe- haven assets.
Mining and Production
The supply of precious metals is greatly influenced by mining and production rates, industry technological breakthroughs, resource accessibility, mining technologies, and geopolitical stability in producing countries, together affecting the availability and cost of precious metals. It is essential to monitor the mining technology advancements to fully understand and forecast precious metals supply trends in the future.
Market Demand Trends
Precious metal demand is impacted by several industries, including investment, industrial applications, and jewelry. Price changes may occur in any of these industries. For example, price increases may result from increased demand for electronics, which frequently employ gold and silver. The World Gold Council regularly publishes a study titled "Gold Demand Trends," which summarizes the main aspects of supply, demand, and market trends for precious metals.
Investors’ Sentiment
Precious metal prices are significantly influenced by investor sentiment and behavior, including market dynamics, projections for the global economy, and the strength of the currencies. These factors can also affect investors' demand for precious metals. Precious metal investments usually rise in response to a trend toward risk aversion, whereas investments in other asset classes may decline as result to a lower economic confidence.
Economic Forecasts
Economic forecasting provides information on long-term patterns in the market for precious metals. Future price fluctuations can be predicted using present economic data, technological developments, and geopolitical events. While many analysts present on economic trends in an approachable and simple-to-understand manner, this may be a challenging subject for anyone unfamiliar with the precious metals markets and broader investing trends.
It's essential to remember that, even if the market is influenced by a wide range of elements, there are numerous sources of information available to help investors navigate. Keeping updated on changes and advancements might be vital.
Trading and Investing in Precious Metals
There is a saying, "not everything that shines is gold" and this is especially true when thinking about purchasing precious metals. The promise of these material riches draws you in, but before you commit to an opportunity, you should carefully put in balance investing in precious metals pros and cons.
Although there are drawbacks to precious metals, such as storage problems and fluctuations in the market, they can also provide a safety net during economic turmoil and act as a hedge against inflation and recessions.
When it comes to trading and investing, defining goals is the very first stage of any plan. This aids in identifying the kinds of financial possibilities that will enable you to fulfill your goals. There are various ways to start investing in precious metals, regardless of your long- or short-term objectives. However, most market experts consider that precious metals should be only a part of an investment portfolio.
Precious Metals Trading
Precious metals are as appealing to traders as they are to jewelers and bankers. While trading precious metals, you have the freedom to trade as per the market speculations, maximize opportunities, and benefit from potential profits. But this comes along with risks also.
Precious metals trading entails making predictions about price movements using financial derivatives like CFDs. You won't ever need to physically own the underlying assets, such gold or silver, because you'll be trading based on the fluctuation of their values. There are various ways to trade precious metals, including futures contracts or ETFs. There is also an indirect way to access these markets like trading stocks of mining companies producing those metals or OTC products like mutual funds based on a particular metal.
However, when trading precious metals, it’s important to know that they typically respond differently than other asset classes to various global events.
Investing in Precious Metals
When thinking about investing in precious metals, it's vital to have an adequate understanding of the many variables that might affect their value. It is important to do in-depth research and analysis on market trends, supply and demand dynamics, storage and insurance costs, and potential risks associated.
Precious metals are considered a great long-term investment due to their intrinsic value. Their importance as a dependable and safe store of wealth is further supported by the fact that they have typically increased in price over time.
Although there are many ways to invest in precious metals, as per experts, novice investors should start with three relatively simple options: purchasing bars or coins, purchasing shares in mining companies, or investing in funds that own mining companies or are backed by real metals.
Buy precious metals as bars or coins
If you are into investing in physical assets that you can see, feel, and handle, the best way is to buy precious metals in the form of coins, bars, rounds, and ingots. These tangible items can be bought straight from trustworthy online dealers or from banks. The type, age, rarity, and weight of the metal can affect the value of bullion and can influence your investment amount. As the price of the underlying precious metal rises, these physical investments should grow in value as well.
Invest in mining stocks
Another way of getting some precious metals exposure is adding stocks of mining companies to your portfolio. For investors with prior experience and knowledge of macroeconomic trends, as well as the political and natural events that influence market activity, purchasing and selling precious metals stocks might sound like an excellent option. Mutual funds and stocks of mining companies can be bought and sold in the same way as stocks of other companies and industries. However, it is crucial to keep in mind that market forces may have a greater impact on the price of these stocks and funds than the price of the underlying precious metal.
Invest via Exchange-Traded Funds (ETFs)
ETFs have become a popular way to own multiple mining companies under a single ticker symbol, making for instant diversification to ward off some of the company-specific risks of investing in mining. Some precious metals funds have actual metals stored in vaults as collateral, each share representing a specific amount. These have grown in popularity as ways to purchase physical metal without having to worry about storing it. However, buying an ETF does not grant investors physical access to the metals.
Regardless of your decision, keep in mind that trading and investing in precious metals might not be for anyone. Choose the precious metal and investment vehicle that best fits your investment thesis after deciding why you want to invest in precious metals (to hedge against inflation, to store value, to diversify your portfolio, or to profit from increasing prices). Every choice carries benefits, drawbacks, and risks. Before making an investment in precious metals, investors should carefully research their options and make sure they are aware of all the risks involved
Trading vs Investing Summary
You may want to start trading precious metals if:
- You want to speculate on the rising or falling precious metals prices
- You want to take shorter-term positions
- You want to trade precious metals without owning the underlying asset
- You want to leverage your exposure
- You want to hedge an existing portfolio
You may want to start investing in precious metals if:
- You are interested in buying and selling the physical metals, stocks, or funds
- You have a long-term investment plan
- You want to own the underlying asset
- You are seeking to build a diversified portfolio
- You want to receive dividends (if paid) and voting rights
Are Precious Metals a Good Investment?
An old question for an age-old class of investments. There are numerous experts on both sides of the dispute, making the topic a controversial one.
Due to precious metals intrinsic value which provides inflationary protection, and because they don't involve credit risk, many investors are seeking refuge to ride out the storms. Precious metals have a low or negative correlation to other asset classes like stocks and bonds, which means that even a modest percentage dedicated to precious metals in a portfolio can reduce the impact of market fluctuations and risk. Additionally, they provide real "upheaval insurance" against monetary, political, or military setbacks.
Even if they are just used as a diversification tool, precious metals can fit into most investment strategies and portfolios. This is because even market risk-takers want a means of balancing their risk, and they frequently go to precious metals to achieve this.
Because they are extremely liquid, precious metals could shield your portfolio against inflation, keep their value effectively, and usually gain momentum during equities bear markets. Precious metals are also a great option for many portfolios' safe-haven allocation.
Regardless of your position, though, diversification in your asset allocation should always be a top priority.
However, when it comes to investing in precious metals, bear in mind that we are debating a special category of assets, each with its unique industrial application, a history as safe haven assets, as well as benefits and drawbacks. At the end of the day, the answer to whether precious metals are a good investment or not largely depends on what each investor is looking for.
Why Trade and Invest in Precious Metals with CAPEX.com?
Speculate with derivatives
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Final words
Investing precious metals is more than just sprinkling some glitter on your portfolio—it's a long-tested diversification technique meant to fortify your financial base. In the past, precious metals such as gold, silver, platinum, and palladium have given portfolio diversification, liquidity, and an inflation hedge.
In the near future, inflation, interest rates, and geopolitics are probably going to continue to be the main forces influencing the price of precious metals. The significant central bank accumulation of precious metals as an asset that is simple to liquidate may continue boosting demand.
However, prior committing, it's important to define your objectives and understand risk tolerance.
Free resources
Before you start trading or investing in precious metals, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading and investing courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more-informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.
Sources:
https://www.morganstanley.com/
https://madisontrust.com/
https://www.miningdigital.com/