Precious metals are a unique asset class that appeals to investors of all sizes and types. From big banks to middle-income individuals who want to set aside some valuables for a rainy day, precious metals are popular because they provide lasting value and investment options outside of securities.
Sovereign wealth funders are some of the investors most aggressive on alternative assets (i.e., not the stock market). According to PWC, in 2016 a total of 23% of sovereign wealth fund assets were in alternative assets including real estate, art, and precious metals. Gold and silver snap up the majority of precious metals buying, but platinum and palladium are also attracting attention from those interested in alternatives.
There are plenty of ways to get started investing in precious metals including gold, silver, platinum, and palladium. Each metal is affected differently by the investment market, industrial demand, and production conditions. Do your research before deciding which metal best fits your goals and consider buying several types of precious metals to tap into different trends.
Despite the growing popularity of other metals, gold remains the most common way to invest in precious metals. You can buy gold in the form of gold coins, bars, rounds, or even bullion jewelry. Individual investors typically buy 1 oz. gold coins and bars, though high-income investors may branch out into larger quantities.
The most important driver of gold prices is investor sentiment. As fears about the stock market mount, investors divert money into gold. Gold prices have an inverse relationship with stocks. Gold can effectively be used as a way to mitigate losses on the stock market.
When it comes to gold consumption, about 22% of gold is used in coins, 34% in electronics, and 38% in jewelry, with another 6% going to a variety of other uses. Ultimately demand pressures tend to have less impact on gold prices than investor sentiment.
Silver can also commonly be found in coin form. If you choose to invest in silver, the safest option is to buy pure bullion silver coins or silver bars.
Like gold, history has shown that silver retains its purchasing power better than fiat currency, at least over the long term. There is more industrial pressure on silver, with about half of the silver produced every year going into industrial uses such as medicine and electronics. Silver prices are also influenced by investor sentiment, often moving in tandem with gold.
3. Platinum & Palladium
Platinum bars and coins are available to investors interested in trying another precious metal, as well as palladium bullion. These two white metals are mined together as they appear in the same deposits. Platinum has a long history of use in jewelry, while palladium has only recently been used in the creation of white gold. While platinum prices lately have been declining, palladium prices have been growing steadily. The cause may be cut to mining driven by reduced platinum demand.