Precious metals are rare, high-value metallic elements. While gold and silver are two of the better-known precious metals, there are others, including platinum and palladium.
While they may also have industrial uses, precious metals are often bought as investments. Read on to learn more about precious metals and how to buy them.
Types of precious metals
There are several types of precious metals, and each one is a different naturally occurring element. Precious metals are generally in limited supply, giving them relatively high values.
Here are a few of the more popular precious metals and what to look for in them.
Gold is often the most popular precious metal. It's durable, malleable and a good conductor, so it can be used in various industrial applications (such as electronics). However, it's more common in jewelry and coins.
Bulk precious metals are referred to as bullion.
The value of gold changes continually, but it's largely based on sentiment rather than changes in supply. This means gold’s value generally moves based on factors such as political crises, central banking policies and economic uncertainty. It’s possible to purchase physical gold in coins or bars or in paper assets like stocks and contracts.
Silver is another popular precious metal. Like gold, it's used as a store of value, but it's more heavily used in industrial applications than gold. It's also more volatile than gold, so its value is likely to rise and fall more quickly. Silver prices rise when the economy is doing well and manufacturers are producing goods. Unfortunately, this means its value can fall when industrial demand is down.
Platinum tends to have a higher price point than gold in some situations — especially in times of political stability and good market health. Platinum is used in various applications, including in the automotive industry as a component in catalytic converters.
Platinum mostly comes from South Africa and Russia. It has a relatively limited supply, and its price is vulnerable to interference.
While it might not be as well-known as other precious metals, palladium is still quite valuable. It's heavily used in industrial applications, such as the manufacturing of electronics and catalytic converters, and chemical applications like groundwater treatment. Most of its supply comes from mines in South Africa, Russia, the U.S. and Canada.
It is possible to purchase palladium in its physical form as well as in stocks and investment contracts. Like silver, the value of this metal may change as industrial demand goes up or down.
Noninvestment precious metals
There are other precious metals, but these are not commonly traded or used for investments. Some of the most common noninvestment precious metals include:
- Ruthenium: This is a hard, silver-white metal. It's a part of the platinum group and is inert to most chemicals.
- Rhodium: This platinum-group metal (PGM) is very rare, corrosion-resistant and has a reflective silver-white color.
- Iridium: This PGM is very hard and brittle. It's the same silver-white as Ruthenium and Rhodium, but it's very dense.
- Osmium: This PGM has a bluish-white color to it. It's very hard and brittle and roughly as dense as iridium.
How to buy precious metals
Buying precious metals lets you add value to and diversify your investment portfolio. It’s also a lot easier than many people expect.
There are three common ways people buy precious metals, according to the U.S. Commodity Futures Trading Commission:
- Futures contracts
- Precious metals securities
- Physical metals
Buying coins made of gold or silver is popular because they tend to be more readily available. However, it is also possible to purchase gold and silver bars, though bars often require higher transaction fees.
Before buying precious metals from a dealer or broker, consider speaking to a financial advisor to ensure you are making a wise investment. There is risk involved in any investment, and some metals may not hold their value over a long term.
Benefits of investing in precious metals
Precious metals tend to maintain their value because they’ve been treasured throughout history and new supplies are small in comparison to the amounts already on the market.
When the economy falters, precious metals may become even more popular — they have some intrinsic value not tied to the market’s climate. This is one reason many people choose to diversify their investment portfolios with precious metals during periods of economic uncertainty.
What are the risks of investing in precious metals?
Some of the most common risks to consider when buying precious metals include:
- Volatility: One of the main risks of any investment is its value falling. Once an asset’s value goes down below what you paid for it, selling will result in you losing money overall.
- Physical risk: It is important to have a way to transport and secure precious metals if you plan to buy them in their physical forms. This may mean paying storage and shipping fees. Certain gold investment tools, like gold IRAs, require you to store your gold in a third-party depository.
- Insurance exclusions: If you plan to hold these precious metals in your home, there could be risks associated with your insurance. Your insurance policy may not cover the full value of these precious metals unless you obtain a special rider.
- Liquidity: While there are often buyers for precious metals, it can take some time to cash these assets in. Doing so may involve transaction fees as well.
- Trade interruptions: There is always a risk that the trading of these commodities may stop. In times of political unrest, some precious metals may become harder to obtain or get rid of.
Bottom line: Are precious metals a good investment?
It’s hard to say if precious metals are the right investment option for you. People have different investment goals and risk tolerances, and there is no guarantee that a precious metal’s value will rise over time. However, many investors find precious metals to be a smart addition to their portfolios. Research investments for yourself before you buy, and consider talking to a financial advisor for help.
You’re signed up
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.