Precious metals have long been seen as a hedge against inflation and economic uncertainty. When stock markets are volatile or currencies devalue, investors flock to precious metals like gold and silver as a store of value, driving their prices up. Gold, in particular, stands out as the most popular choice for protecting wealth in times of uncertainty, with central banks around the world holding vast reserves to safeguard against currency fluctuations and political upheaval. Also, the
outweighs its demand for industrial uses - more so if we also consider owning jewelry as a form of investment. This pattern contrasts sharply to other precious metals. Silver, for instance, has a
, due to its use in sectors like electronics, solar panels, and medical equipment. Platinum follows a similar pattern, with industrial demand outpacing investment demand, due to the
How safe are precious metals as a form of investment?
The price stability of precious metals like gold and silver makes them an attractive option for risk-averse investors, but not all metals behave the same. Gold and silver prices increased significantly since 2019, but
their increase pales in comparison to the surging prices of rhodium and iridium, which have seen exponential growth due to their scarcity and specialized uses in industry.
Rhodium's price spike in 2022, for instance, has been driven by its essential role in automotive catalytic converters required to meet stricter emissions standards, along with
widespread disruptions to supply chains worldwide. Since then, the price declined dramatically, but still remains almost two times as high as in the beginning of 2019. This demonstrates how the value of individual precious metals can be affected differently by geopolitical risk, supply chain disruptions, and national regulations. Accordingly, investors should keep in mind the potential risks associated with investing in precious metals, such as price volatility, particularly with industrial metals like platinum and rhodium, which can also swing wildly based on supply-demand imbalances.
ETFs and other entryways into precious metals
Investing in physical metals is one way to invest in precious metals, but this is not practical for many people as the cost of entry can be high and there is the requirement to safely store them. Securities that track or are aligned with precious metals are a way to overcome these barriers.
Precious metals exchange-traded funds (ETFs) provide a return by tracking the price of physical metals by direct investment often in a basket of securities. Exchange-traded commodities (ETCs) are similar to ETFs tracking price movements of precious metals. However, these are debt instruments underwritten by a bank often with a specific focus, such as the
performance of the gold bullion through ETCs. Investors also have the option to invest in companies involved in the precious metals industry, such as
the largest public gold mining companies. These stocks may be affected by trends in the precious metals industry but do not track the performance or spot price of the metals.
A balancing act
Investing in precious metals offers both opportunities and challenges. Gold remains a pillar of stability for conservative investors, while industrial metals like platinum and rhodium present higher-reward but riskier alternatives. Whether through physical metals, ETFs, or mining stocks, investors should carefully weigh their risk tolerance, market outlook, and financial goals. Precious metals can provide a buffer in uncertain times, but as with any asset, they come with their own set of risks that must be carefully considered.
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