A precious metal is a rare metal that has high economic value. These factors include their rarity, use in industrial processes, and their role throughout history as a source of value. Gold, silver, platinum, and palladium are other precious metals for investors.
Precious metals, which are rare commodities, have been long valued by investors.
They were used historically as the money base, but they are now traded mainly to diversify portfolios and hedge against inflation.
Traders or investors can buy precious metals using various methods, such as owning ETFs, physical bullion coins, and bars, like a physical pure gold bar.
Understanding Precious Metals
Precious metals have played an essential role in the history of the world economy. Many currencies were either physically printed using precious metals or were otherwise backed by them. Today investors buy precious metals as a financial investment.
Precious metals are an excellent investment. A commercial buyer may find precious metals essential for jewelry or electronics.
Today, three major factors that influence demand for precious metals are financial stability, fear of inflation, and the perception of war.
For investment purposes, pure gold is the most desired precious metal. Silver follows close behind. Palladium and iridium are precious metals used for industrial purposes.
Investing In Precious Metals
There are several options for investors who wish to add precious metals to their portfolios. First, individuals who want to own the metals directly can buy bullion in bars and coins or purchase physical bullion. They then can store them in a safe deposit box. This type of ownership reduces counterparty risk and allows for more excellent storage and insurance cost.
You can also buy futures contracts for that metal or purchase shares in publicly traded companies involved in the exploration or production of precious metals. ETFs and mutual funds offer many options, including portfolios of mining firms, leveraged exposure, and funds backed with bullion.
Even though they can offer some security, there are always risks associated with investing in precious metals. For example, prices may drop in times of economic uncertainty when investors are forced to liquidate assets to pay margin calls and other bills.
Similar to physical assets, it may be difficult for them to be sold at reasonable prices during times of volatility. In addition, storing precious metals at home increases the risk of theft.
Real-World Example for Precious Metals
Gold is the most popular precious metal. It attracts lots of attention from financial media as well as market participants.
Various factors contribute to an increase in the desire to hoard shiny yellow metal.
Systemic financial problems: When money and banks are perceived as unstable and/or political stability is doubtful, gold has often been used as a safe place of value.
Inflation is when the actual rates of return in equity, bond, and real estate markets are negative. As a result, people flock to gold regularly as an asset that will retain its value.
War or political crisis: War and political turmoil have always led people to become gold-hoarders. It is possible to make your entire life’s savings portable so that you can trade it for foodstuffs, shelter, or safe passage to less dangerous destinations.
Gold hit a peak inflation-adjusted value of around $2,200 in February 1980. Then, it dropped to a low below $400 in April 2001. Over the past 20 years, gold’s value has risen to almost $2,000 by October 2020.
If you are still asking, “what are precious metals,” AU Precious Metal Solutions is here to help!