Precious metals are natural elements that are generally rare and bring significant economic value. They are considered valuable because they are scarce, and they could be used in various valuable manufacturing processes. Gold, silver, palladium, and platinum are the most preferred precious metals for investing. Other precious metals included in the list are iridium, osmium, rhodium, and ruthenium.
Why Invest in Precious Metals?
The days when precious metals were used as money are now gone (although they could quickly come back at some point in the future). With a system of fiat (the word fiat means – without any intrinsic value) paper money that is in operation, why would someone make a bet on precious metals? Luckily, when it comes to fiat money, we can easily predict what is in store for them in the future. All paper money (Let’s call them currencies – but not money) have a built-in defect within them – they are forms of debt, and they require some interest on them just for the very fact that they were printed into existence. In the long run, they all go down in a debt spiral, and their value inevitably goes down to zero. This is not a great scientific discovery on our part; it is how things are in reality. This is no joke. Usually, it means that the savings of entire generations eventually get confiscated by relentless money printing.
Precious metals, however, are immune from the greedy printing press. They store value within themselves. A gold coin today will hold its value for thousands of years.
Imagine if your grandfather worked all of his life while exchanging his labor for gold and silver coins instead of the currency of his time (now long gone and forgotten). During his fruitful life, he would have likely produced more than he consumed and saved the difference, accumulating wealth in the process. Later, he passed his coin stack to your father (he just handed it over in a little bag without telling the government about it, saving tons of taxation). Your father was also a productive man and managed to build on the grandfather’s fortune. In turn, you get to inherit a solid stack of gold that you can build on yourself. Wealth is preserved from generation to generation. In fact, you very well might be quite a wealthy man by today’s standards if three generations before you handed you their savings.
Instead, in our so-called fiat money system, the currencies get depreciated every single day, and any rational person is facing a constant struggle to protect his wealth (if kept in fiat currencies) against currency debasement.
Gold, for example, has a magic property built into it. If you go to work today and work extra hard on a job and you get paid in gold, then you can stare at your little gold bar, and at some point, you will realize that the fruit of your labor will be kept and protected for a long, long time. Maybe someday, your grandson will say, “Back in 2022 – my grand grandfather created some wealth, and he passed it over to me”.
In other words, precious metals have been used for money for thousands of years. The first reason why people should acquire metals is just that – acquire real money and get rid of fiat currency. Here is some great analysis in the video below:
Advantages and Disadvantages of Investing in Precious Metals.
The prevailing narrative in the press is that metals as investments are generally safe. Especially during crisis times (May you live during interesting times, as the Chinese say), like hyperinflation, war, geopolitical shifts, or other emergencies. Owning precious metals could be exceptionally useful during periods of hyperinflation when the wealth of entire economies get quickly wiped out.
First and foremost, precious metals bullion is the only financial asset class you can own that is not simultaneously someone else’s liability.
Investing in Precious Metals as Money?
All of your life, you will be working for money. From a very early age, it is important to understand what money is and what it is not. So, ask the philosophers and historians, and they will give you an excellent answer. Then study the history of money from ancient to modern times.
The first important thing to understand is that money is a THING! A commodity of some sort, to be exact, that is freely chosen as a medium of exchange on the free market.
The critical characteristics of money are:
- Durability – the thing that is accepted as money must last for thousands and thousands of years. Wheat or paper cannot be money because they do not last!
- Divisibility – money must be easily divisible while retaining its value. You cannot cut the Mona Lisa in pieces as it will lose its value.
- Consistency – One piece must be the same as the other.
- Convenience – Trade must be convenient – this is why we don’t use iron or cotton as money – too inconvenient.
- Intrinsic value! – What is chosen as money must be valuable by itself. This is one of the most critical and misunderstood functions of money. Don’t forget that all currency in the world has no intrinsic value – the paper itself is not a very valuable thing. Because it does not have an intrinsic value, it is very easy to counterfeit or inflate. The intrinsic value also provides another essential thing to people – it serves as a simple yet proven mechanism for storing wealth!
- Rare – what money is should be relatively rare and could not be easily reproduced.
- Subject of luxury – money needs to be something that is highly regarded and subject of luxury.
“Investing” in Gold
Gold is the most popular and investable precious metal. As a metal, it has fantastic properties such as durability (it doesn’t react with oxygen or water and does not rust). It melts only at 1,064 °C and could easily be shaped in any form. It is the best heat and electric conductor known to man. It might be used in many industries like electronics or dentistry, but because it its high cost, it is mainly used in jewelry or as a store of value. Because of that, investors look to have it on hand for times of economic or political distress and as a hedge against rising inflation.
The most popular ways of investing in gold are 1. Purchase of physical gold coins, bars, or jewelry. 2. Buying gold stocks (shares of gold mining, streaming, or royalty companies), 3. Buying gold-focused exchange-traded funds (ETFs) or gold-focused mutual funds.
Is Gold Really an Investment?
The answer to this is “No.” Gold is not an investment – instead, it is money itself. It is challenging to get the idea at first, but we know that money is a commodity that gets accepted as a medium of exchange in the free market.
Murray Rothbard would summarize the point like this. “Learning this simple lesson is one of the world’s most important tasks. So often, people have talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity—and, like all commodities, it has an existing stock, it faces demands by people to buy and hold it, etc.”
Pros of Investing in Gold
Investing in gold has many benefits. Listed below are a few of them:
- Gold provides protection
When there is political and economic instability, legal tender usually depreciates greatly compared to assets such as gold and silver. While both silver and gold bullion may be attractive to investors, the white metal is often ignored in favor of gold investors, despite the fact that it serves the same purpose.
2. Gold protects savings from the Inflation Tax – Inflation is genuine. Every day it takes away from your purchasing power and gives it to the government. In the long run, it will devastate your savings unless you protect them.
Cons of Investing in Gold
- The Problem of Liquidity
The liquidity of precious physical metals is generally more complicated than that of paper equivalents. The most liquid items usually are bullion coins and bars that are well-recognized around the world, such as the PAMP Suisse Certified Gold Bars or the American Silver Eagle bullion coins. Those can generally be sold quickly to coin dealers or precious metal trading companies in your country. However, you could expect them to offer a large spread between the buying and the selling price. Jewelry is generally liquid, but dealers will buy it for its metal value (after an assaying process) without paying a dime for the item’s craftsmanship cost.
Some countries have minimal markets for physical gold. There could be a minimal number of gold trading companies that will take advantage of the little competition by purchasing gold at prices lower than the market spot price. Precious metal trading is also usually subject to government reporting. Other countries, such as Dubai, Singapore, and Hong Kong, have superbly developed gold markets where precious metal trading is not subject to taxation. The liquidation of gold and silver bars can happen instantly, with prices as close to the spot as possible.
2. Storage of Physical Gold
Storing precious metals could be a challenging matter. Generally, you can store it at Home, in a Safe Deposit Box in a Bank, or a third-party storage facility. The key is to prevent theft or confiscation.
3. Gold could underperform in the short run
The price of gold naturally does not go up in a straight line. It could go up sharply at times, but there could easily be periods of several years during which the price of gold goes down or it fluctuates in a range.
Doug Casey has a classic interview outlining the essentials of gold as money and investment.
Investing in Silver
Referred as “Poor’s men Gold,” Silver is a unique metal with some incredible properties. The Silver Institute rightfully calls it “The Indispensable Element.” The metal characteristics of silver are exceptional among all the substances found in the periodic table of elements.
- Malleable – Silver can be transformed into any shape without breaking or cracking
2. Ductile – An ounce of silver can be drawn into a wire 8,000 feet long without breaking.
3. Electric Conductor – One of the world’s best conductors of electricity, silver is widely used in electronic components such as wires, switches, and printed circuit boards. It is excellent for micro-electronics devices such as smartphones, where it is a key and irreplaceable component as it can be bent and squeezed into tiny spaces without breaking.
4. Silver can prevent the growth of dangerous germs – The metal has a unique property of penetrating bacteria cell walls – while not harming mammalian cells – and destroying the ability of the microbe to reproduce.
5. Store of wealth and medium of exchange – Silver has all of the properties of money and has been used as such for thousands of years.
Pros of Investing in Silver
Investing in silver has many benefits.
- Silver provides protection.
When there is political and economic instability, legal tender usually takes a back seat to assets such as gold and silver. While both silver and gold bullion may be attractive to investors, the white metal is often ignored in favor of gold investors, despite the fact that it serves the same purpose.
- It is physical money.
It has intrinsic value and can not lose all its value because of its built-in worth.
- Compared to gold, silver is much cheaper and great for smaller transactions.
Gold is unpractical for smaller transactions. It is not convenient to pay in gold for a dinner for example, but paying with silver is generally very easy.
- If gold is to double, then chances are that silver with quadruple.
Silver tends to outperform gold dramatically in bull markets.
- Silver provides liberty to its owner.
The taxman will not know about those 100 ounces of silver in your backyard.
Cons of Investing in Silver
- The Problem of Liquidity
Silver is more difficult to sell than gold. The most marketable items are bullion coins that have little premiums over market spot prices. They are usually kept just for storage on the metal inside them.
- Theft Risk
Silver is bulkier than gold, and it takes more space to store.
- More difficult to transport
While gold is perfect for smaller transactions, it is not very practical for transportation and bigger purchases. While not as heavy as gold, it quickly becomes burdensome. Assume that at the current price of $24 per silver ounce, you would like to buy a $200,000 house. This means that you will have to deliver 8333 ounces of silver to the seller. This will require about 260 kilograms of silver to be delivered physically.
About 16.7 monster boxes of Austrian Philharmonics silver coins, each holding 500 coins, will be needed to buy a $200,000 home. The total weight will be about 260 kilograms.
Trading the Gold-Silver Ratio
What Is the Gold-Silver Ratio?
The gold-silver ratio is an elementary concept that takes the current gold price and divides it by the current silver price. It is the immediate answer to the question, “How many ounces of silver does it cost to buy one ounce of gold.” It is difficult to say what the perfect gold-to-silver ratio should be. Back in the days of bimetallism, or in the early days of America, the ratio was about 1:16, while later, it has hit extreme values of 1:80 or higher.
How to Trade the Gold-Silver Ratio
Those who are focused on accumulating more and more metal can easily “play” the gold-to-silver ratio. If the ratio goes to an unusually high value, then they would sell their gold holdings and immediately exchange them for silver. Later on, when the ratio goes to lower levels, they might do the opposite, sell their silver and convert it to gold.
Investing in Platinum
Platinum is in the same group as ruthenium, rhodium, palladium, osmium, and iridium. They all have similar properties and often naturally occur in the same mineral deposits.
Platinum is about ten times as rare as gold. Only 160 tonnes of platinum are produced yearly compared to approximately 1,500 tonnes of gold.
Traditionally, the price of platinum is higher than that of gold. Yet lately, gold has been about twice as expensive as gold. Naturally, many investors entertain the question, “Why don’t I sell my gold holdings and convert them into platinum?”.
Platinum has many industrial applications, especially in the automotive industry, which uses it to make catalytic converters. Other industries, such as the petroleum, jewelry, and refining sectors, use quite a lot of platinum. The metal is also produced mainly in South Africa, Russia, Canada, and Zimbabwe, making it sensitive to political changes. Platinum bullion coins are produced by many of the world’s top mints, notably in the US, UK, Canada, and Australia. However, purchasing Platinum coins from a Bullion dealer has a considerable premium over the Spot Price of the market. At the current platinum spot price of about $1,088 per ounce, one would be happy to buy 1 oz of Platinum coins for less than $1,350.
Investing in Palladium
Palladium also has critical industrial applications, especially in electronics, industrial products, dentistry, medicine, chemical applications, jewelry, and groundwater treatment. Usually priced about 50% of the gold price, lately, it sells higher or around the gold price. The vast majority of Palladium in the world is produced either in South Africa or in Russia.
How to Invest in Precious Metals
These are the popular options that an investor has in 2023:
1. Buying Physical Metals
This is the vanilla option – you can buy precious metal bullion in the form of coins, bars, bullion products, or bars. A safe method of storage and some patience is needed. If you just want to invest, say, 2,000$ for the long run – get a mint gold coin, forget about it and watch it accumulate wealth incrementally over the years.
2. Buying Exchange-traded fund (ETF)
If you want to actually own gold (or “paper gold” as it is called), you can look for funds or indexes that track the price action of the precious metals. While you don’t actually get the physical metal, you can actively trade your investment and get in and out as quickly as possible. Profits will have to be reported to the taxman, however.
3. Buying Gold or Silver Miner Stocks:
That one requires some knowledge and skill. This is an investment in the companies that mine metals, not the metals themselves. It provides an indirect way to invest in the market. Some of these companies could be rockets in the future, or others might just be nothing-burgers. We do know that the prices of some of these stocks tend to multiply as there is price action on the metals themselves.
4. Using Precious Metal IRA
Retirement accounts with gold or precious metals backing could be useful for wealth protection.
Risks of Investing in Precious Metals
- Price fluctuations: This might be a fundamental disadvantage. Commodities can often make sharp moves to the upside or the downside.
- Competing assets: Notably, the rise of cryptocurrencies. Cryptos have been wrongly compared to precious metals by the media, and many people have bought into the story that “Crypto is Better than Gold.” They are not.
- High-interest rates: If interest rates go higher than normal levels and inflation is low, then buying fixed-income instruments becomes more attractive as they will pay yearly dividends.
Buying Stocks in Precious Metal Mining Companies
One of the easiest ways to invest in precious metals is through the stock market. Several companies focused on the precious metals trade on stock exchanges. Here are five top precious metals stocks that investors could consider:
- Loved by the Reddit crowd, First Majestic Silver (NYSE:AG) is a company primarily focused on silver and gold mining. It has the most direct exposure to the price of silver in the mining sector.
Keith Neumeyer of First Majestic is well known for his regular great insights on the silver industry.
An exciting thing that the company is publishing in its annual reports is THE TEN RULES OF SILVER.
1. Silver is real money. 2. Physical silver is a hard asset. 3. Silver is relatively inexpensive. 4. Silver isn’t just cheaper to buy, but it can be more practical when you need to sell, too. 5. Silver outperforms gold in bull markets. 6. Silver inventories are falling. 7. Industrial use is growing. 8. New supply is falling. 9. World demand is growing. 10. The gold/silver ratio favours silver
- Franco-Nevada (NYSE:FNV): Franco-Nevada is a Toronto, Ontario, Canada-based, leading gold company.
- Newmont Mining (NYSE:NEM): Newmont Mining is the largest gold company in the world. It is considered a Bellwether in the mining industry.
- Sibanye-Stillwater (NYSE:SBSW): Sibanye-Stillwater is the world’s largest primary producer of platinum and palladium.
- Wheaton Precious Metals (NYSE:WPM): Wheaton Precious Metals is one of the world’s largest precious metals companies.