A glance at the current spot prices of precious metals shows how platinum and gold trade for very high prices per troy ounce, compared to palladium and silver. There is such a range of constantly changing values because of the many dynamics behind the markets.
Gold, Silver, Platinum and Palladium: Production, Supply, Demand and Emotion
What are the forces that drive buyers to value the four widely-traded precious metals so differently?
- Fear and Greed. The mere belief that prices will rise or fall is often all it takes for values to swing, sometimes wildly. For example investors have for centuries regarded gold as a hedge against weak currencies and inflation, and as a safe haven in times of war or financial uncertainty. Silver, platinum and palladium similarly react to such fears, but far less so.
- Commercial and industrial uses. Except for jewelry and vanity items, gold has relatively few actual uses. Palladium and platinum, on the other hand, are indispensable in auto catalytic converters and several other critical industrial applications. Silver also has real-world uses like batteries, electronics, bearings and soldering.
- Rarity and production. Platinum is the rarest and most expensive of investment-grade precious metals for good reasons. All the platinum ever refined would fit in a room 25 feet on each side, and it is mined mostly in just two places, South Africa and Russia. Gold, silver and palladium are more abundantly and widely distributed around the world, and there is simply more of those metals in the ground and in refined form. The on-hand supply of platinum would last only one year, compared to 25 years for gold. Supply disruptions are more likely to influence platinum's price than gold's.
- Jewelry. Gold is traditional, and probably always will be the dominant metal for the jewelry market in any economy, despite the beauty of silver and palladium, and the prestige of platinum.
There are basically six ways to buy, hold and invest in gold, silver, platinum and palladium.
Buy Precious Metal Investment Coins
Compared to platinum and palladium, there is a greater variety of widely-traded gold and silver coins, both bullion-grade like the new American Eagles, Maple Leafs and Krugerrands, and numismatic (collector's) pieces. All carry a price, called a premium, above spot prices of the metals from which they are made.
For example, the popular numismatic U.S. $20 gold coin (Double Eagle) minted from 1877-1907 has almost 1 troy oz. of gold, yet sells for several hundred dollars premium over spot because of its rich history and beauty. Coins seldom need to be assayed to prove they are authentic, so they are easily to resell.
Invest in Precious Metals Bullion
Bullion ingots and bars are available in amounts from 1 grain to 1 kilogram. They are usually numbered and registered and bear the imprint of the bank or refiner that guarantees "good delivery." They sometimes need to be assayed before selling to detect counterfeits.
Own Precious Metals Mining Stock
There are many gold, silver, platinum and palladium miners and refiners listed on the NYSE and NASDAQ. As with all publicly-traded companies, some are better managed and more profitable than others, so research carefully. Share prices often do not track or precisely correlate with base metal prices.
Invest in Precious Metal Exchange Traded Funds, ETFs
Some precious metals ETFs buy and physically hold gold bullion (i.e., they have massive collections of gold bars), and investors buy shares. Other ETFs invest in futures contracts. Physically-backed ETFs track the spot metal price more accurately, since the value of the underlying holdings depends solely on the market price of bullion. There are several flavors of ETFs and ETNs, exchange traded notes. Research carefully before investing.
Take a Futures Position in Gold, Silver, Platinum and Palladium
Gold, silver, copper, platinum and palladium are traded on public futures exchanges (e.g., the CME NYMEX), where speculators can quickly reap large profits if their hunches are correct. The inherent danger of futures trading is a crushing loss if the market goes the wrong way. Only investors who have a good understanding of how futures markets work – and excess capital–should consider this alternative.
Buy Gold and Precious Metal Jewelry and Scrap
In some cultures people literally wear their wealth in the form of jewelry and adornment. But such items seldom are seldom pure, and buying them to accumulate wealth could be an investment land mine. Jewelry, watches, silverware, sterling and the like are almost always alloyed with less expensive metals to impart desired hardness, durability, color or other attribute.
There are some standards: 14karat gold always contains 58.5% of the yellow metal and a ring market "950plat" must by law contain 95% platinum. But most precious metal artifacts are works of art, and whatever their gold or platinum content, the carry a premium over spot prices based on the designer's craft and what the market will bear.
Many analysts believe all precious metal prices will continue rising due to government debt, possibility of war and global financial uncertainty.
George Daleiden - I was a science major in college and later a career member of the Institute of Food Technologists. I worked in the processed food and ...
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