Investing in Precious Metals
The primary precious metals could be called the grandfathers of investing (not that upstart Platinum – he is a late comer!). It was the hoarding of gold, silver and to a lesser extent other metals that gave rise to the concept of “brokers” and “markets”. Eventually the demand for these metals gave rise to the concept of currency, which was based on metals, which were held in storage. This is a long way of saying that precious metals are considered by many to be the one investment (along with land) that will maintain value despite market changes in the short term.
Notice that the emphasis is on
value and not on stability.
Precious metals have a tendency
toward price fluctuation for a
number of reasons, which will be
discussed later. Many
investors feel safe knowing that
some of their portfolio is in
precious metals and as such they
are not dependent on the
financial markets or currency.
Therefore, there are many
benefits to investing in
precious metals and having some
percentage of a portfolio
invested in them can certainly
make sense.
How they are bought?
Most precious metals can be purchased in the form of the actual asset (usually in coins or bullion) or they can be purchased in the form of a “contract” giving one the right to buy the precious metal in a certain quantity.
Some also
invest in precious metals
through mining operations which
are considered to be valued in a
similar manner to the metal by
the reasoning that when the
price goes up the profits of the
mining operation will also rise.
What are the various Precious Metals and how are they valued and traded?
Gold
– Gold is by far the most
popular investment choice.
Much of this has to do with its
history and the fact that it is
the basis (or has been) for
certain currencies. Gold
is also used as the standard in
the International Monetary Fund,
which speaks to its value as a
commodity. Most trading in
gold is actually done in the
form of coins or certified bars,
which are called bullion.
Gold can be volatile in terms of
price fluctuation since it is
the most actively traded
precious metal as compared to
the others.
The actual use of gold as a resource primarily takes place in the jewelry, dentistry and electronics industries.
Gold is measured by “Troy Weight” and by “Grams”. The term Carat is used to designate the percentage of actual gold when the metal is alloyed with other metals. The fact that gold is very soft requires this to be the case in almost any situation.
Silver
– Silver is second in popularity
to goal and for various reasons
actually has more practical uses
from an engineering standpoint.
Most of this is due to silver
having the highest electrical
and thermal conductivity as
compared to all other metals.
The most
popular use for silver is in
tableware, jewelry, coins and
photography equipment.
Silver is measured in a similar manner to gold and is often traded in the form of “ingots” or coins.
Platinum
– Platinum is a newcomer in some
ways since it was not discovered
by Europeans until the discovery
of the new world. However,
before that time it was valued
by many of the indigenous
peoples of the Americas.
Though platinum is more precious
than gold it is still not as
popular.
Platinum has more industrial uses than the other precious metals due to the catalytic properties natural to the metal as well as the fact that it is immune to corrosion.
Platinum is used in jewelry, manufacturing, electrical contacts, dentistry and automobile emission control devices (namely catalytic converters and their offspring). Roughly, platinum is typically valued at twice the value of gold and is traded less actively.
Platinum trades in coins and bullion bars in a similar manner to gold and silver.
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