Investing In Precious Metals: A Beginner’s Guide

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Gold and silver have always been the choice metals when it comes to value since time immemorial. Even in current times, every investor’s portfolio includes these precious metals. However, the question is that which precious metal is the best when investment is concerned. The main precious metals that you can invest in are gold, silver, platinum and palladium, and there are many reasons why you should decide to invest in them.

Ø About the Metals

As a beginner, the following things will clear your doubts regarding these metals, their demands and the factors that affect their prices and trade –

• Gold – Gold is the prime among all metals, and this is especially true for investment purposes. The metal’s durability is unparalleled and so are its malleability, ductility, resistance to rust and conduction to heat and electricity. It also matters that gold jewelry looks beautiful. The yellow metal may also come in a form of currency and has industrial applications such as electronics and dentistry.

Gold is traded in the market for all the 24 hours in the day and 7 days in the week. The prices of gold are not as dominated by supply demand factors as they are by sentiment. There is barely any new supply of gold from the mines when you compare it to the above the ground supply, which rests with hoarders. When they want to sell their gold, the prices take a hit and when they want to buy it, the new supply gets absorbed quickly and overall prices see a boost.

There are many reasons as to why gold is hoarded –

1. Inflation – People trust gold to be an asset that would never lose its value and would always bounce back. Thus, when rates of return in the real estate market, bonds and equity get hit, there is always gold that they can turn towards, and this encourages hoarding.

2. Safe – There are also reasons of systematic financial concerns when gold is involved. When the times are dire so that banks and money become unstable and people start questioning the government and the political stability, they always have gold as a store of value that is safe.

3. Political Issues or War – Gold hoarding is always the most during political crisis. People can simply convert all their life savings into gold and use them for food, water and other necessities in case of war.

• Silver – Silver has always been more volatile as compared to gold. The fluctuations in the value of this metal are extremely drastic because not only does silver act as a store of value like gold, but it also has some unmatched industrial applications. This is why, even though the sentiment factor works for silver as well, it is not as strong as that with gold. With silver, supply and demand are always pretty powerful factors when prices are concerned. This is a fluctuating equation when new innovations are concerned, including –

1. Photography Industry Silver used to have a predominant role in the industry of photography but then the digital camera was invented and silver based photography films were history.

2. Demand from the East In the East’s emerging markets, there was a huge rise of middle class because of which electrical appliances experienced an explosion in demand. Same was for industrial items and medical equipment. These things required silver as a must because of its superior properties and thus, silver came out as a desired commodity.

3. Other Factors Microcircuit markets, batteries and superconductor applications use silver.

With silver, one can never be too sure how all the new and innovative developments will affect its prices. Silver’s demand is mostly non-investment because its other applications far outweigh the need to hoard silver and there is always gold for that purpose. This is a fact and silver is a metal which much more applications than beautiful jewelry or fashion.

• Platinum and Palladium – The global commodities market experience round the clock trading of platinum like silver and gold. When the market is experiencing political and general stability, the prices of platinum always beat that of gold because platinum is a rarer metal. Annually, the supply of platinum is pretty less because of that reason and that ultimately affects the prices positively. There are a few other factors that determine the price of platinum and they are as follows –

1. Demand Sources Platinum has many properties, which make it perfect for many industrial applications, quite similar to silver. The biggest demand for platinum is in the manufacturing of automotive catalysts, which are responsible for reducing and controlling the harmful vehicular emissions. Jewelry in platinum is next in line when demand is concerned. Whatever is left of platinum is absorbed by the chemical and petroleum refining catalysts and the computer or IT industry.

2. Palladium and Its Effect on Platinum Prices The prices of platinum are largely dependent on the production and auto sales numbers because these are the industries that place absolute reliance on this metal for their processes. Because of platinum’s reliability and the Clean Air legislation, more catalytic converters were required to be installed in vehicles and this increased their demand. However, the carmakers of US and Japan turned towards recycled converters in 2009 and this increased the demand of palladium. Palladium is Platinum’s sister group metal and is less expensive that Platinum as well.

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3. Limited Supply Only Russia and South America have a good concentration of platinum mines. Thus, this gives them a lot of scope to act like a cartel and they are at a position to interfere, support or even raise the prices of the precious metal by artificial means.

This is why among all other precious metals, platinum is easily the most volatile and investors should think well before investing.

Ø How to Invest in Precious Metals

You have a few options if you wish to invest in precious metals and they are as follows –

• Stocks and Mutual Funds – Make sure that you get some handy knowledge about the working of mining stocks. Shares of miners’ precious metals always have leverage to price movements when precious metals are concerned. It would be prudent to stick to those managers who have a good performance record if you don’t have adequate knowledge about mining stocks.

• Commodity Exchange Trade Funds (ETFs) – Gold, Silver and Platinum all have ETFs but since 2009, to access Platinum ETF, you have to trade in LSE (London Stock Exchange). If liquidity is your main purpose, then ETFs can be a pretty nifty way of selling and purchasing platinum, gold and silver.

• Futures and Options – For investors who are interested in making huge bets on the price movement of metals, the market of futures and options has great leverage and liquidity. There are derivative products, which offer the potential of a huge profit or huge losses but there are always hedging options.

• Certificates – Many investors hate storage and transportation issues with gold but also want physical ownership of the precious metal. Certificates are a way out for them and offer the best deal. However, certificates would not have any exchange value in case of political instability, war or such similar issues, which make physical ownership of gold so valuable.

• Bullion – If you have a place for storage of precious metals, you can invest in bars and coins. They can be pretty bothersome to store and are not liquid and if time is a limitation, investment in bullion would not be recommended. However, for pessimistic investors wanting to hoard, they can be pretty great.

Ø Current and Future Prospects

Gold futures of Comex August 2013 saw a gain by 0.18% while silver futures for the same month saw a decline by 0.30%. It is predicted that gold prices would go down today because of the central bank’s meet which is making investor’s cautious. However, the weekly prospects of gold seem promising. Palladium, on the other hand, is predicted to perform very well this year and has, in fact, been the top performer in precious metals for 2013. Platinum’s prospects seem to be good as well.

In conclusion, if you want a diverse portfolio then investing in precious metal is a good choice.

Ref:

www.myiris.com/newsCentre/storyShow.php?fileR=20130729125323199&dir=2013/07/29

articles.economictimes.indiatimes.com/2013-07-22/news/40727819_1_autocatalyst-platinum-supply-platinum-price