Bullion Investing 101

A Beginner's Guide to Precious Metals

By 

BARCLAY PALMER

Updated May 25, 2022

Reviewed by 

THOMAS BROCK

Fact checked by KIRSTEN ROHRS SCHMITT

Gold and silver have been recognized as valuable metals and were highly coveted by ancient civilizations. Precious metals still have their place in a savvy investor's portfolio in modern times. But which precious metal is best for investment purposes? And more importantly, why are they so volatile?

There are many ways to buy precious metals like gold, silver, platinum, and a host of good reasons why you should give in to the treasure hunt. So if you're just getting started out in precious metals, read on to learn more about how they work and how you can invest in them.

KEY TAKEAWAYS

• Precious metals are one way to diversify an      investor's portfolio and can act as a hedge against inflation.
• Although gold is the most common investment in the      precious metals sector, it isn't the only one out there for investors.
• Silver, platinum, and palladium are all      commodities that can be added to your precious metals portfolio, and each      has its own unique risks and opportunities.
• There are a number of factors that make these      investments so volatile, including supply, demand, and geopolitical      issues.
• In addition to owning physical metal, investors      can gain access through the derivatives market, metal ETFs and mutual      funds, and mining company stocks.

Gold

We'll start with the granddaddy of them all. Gold is unique for its durability (it doesn't rust or corrode), malleability, and ability to conduct both heat and electricity. It has some industrial applications in dentistry and electronics, but we know it principally as a base for jewelry and as a form of currency.

Its value is determined by the market 24 hours a day, seven days a week. Gold trades predominantly as a function of sentiment—its price is less affected by the laws of supply and demand. This is because the new mine supply is vastly outweighed by the sheer size of above-ground, hoarded gold. To put it simply, when hoarders feel like selling, the price drops. When they want to buy, a new supply is quickly absorbed and gold prices are driven higher.

Several factors account for an increased desire to hoard the shiny yellow metal:

• Systemic financial      concerns. When banks and money are perceived as unstable      and/or political stability is questionable, gold has often been sought out      as a safe store of value. 
• Inflation. When real rates of      return (RoR) in the equity, bond, or real estate markets are      negative, people regularly flock to gold as an asset that will maintain      its value. 
• War or political crises. Conflict and      political upheaval have always sent people into a gold-hoarding mode. An      entire lifetime's worth of savings can be made portable and stored until      it needs to be traded for foodstuffs, shelter, or safe passage to a less      dangerous destination. 

The United States has the world's largest reserves of gold, amounting to 8,867.72 tons as of February 2021.

Silver

Unlike gold, the price of silver swings between its perceived role as a store of value and its role as an industrial metal. For this reason, price fluctuations in this market are more volatile than in the market for gold.

While silver roughly trades in line with gold as an item to be hoarded, the industrial supply/demand equation for the metal exerts an equally strong influence on its price. That equation has always fluctuated with new innovations, including:

• Silver's once predominant role in the photography      industry (silver-based photographic film) has been eclipsed by the advent      of the digital camera.
• The rise of a vast middle class in the emerging      market economies of the East created an explosive demand for electrical      appliances, medical products, and other industrial items that require      silver inputs. From bearings to electrical connections, silver's      properties made it a desired commodity.
• The use of silver in batteries, superconductor      applications, and microcircuit markets.

It's unclear whether, or to what extent, these developments will affect overall non-investment demand for silver. One fact remains: Silver's price is affected by its applications and is not just used in the fashion world or as a store of value.

Platinum

Like gold and silver, platinum trades around the clock on global commodities markets. It often tends to fetch a higher price (per troy ounce) than gold during routine periods of market and political stability simply because it's much rarer. Far less of the metal is actually pulled from the ground annually.

There are also other factors that determine platinum's price:

• Like silver, platinum is considered an industrial      metal. The greatest demand for platinum comes from automotive catalysts,      which are used to reduce the harmfulness of emissions. After this, jewelry      accounts for the majority of demand. Petroleum and chemical      refining catalysts and the computer industry use up the rest.
• Platinum prices are influenced heavily by the      geopolitical conditions in the countries where mining takes place as well      as the supply and demand equation. In this respect, prices have been      determined, in large part, by auto sales and production numbers. The drop      in vehicle production and curtailed demand for autocatalysts (which      accounts for a third of platinum demand) during the COVID-19 pandemic      pushed prices down. Supplies dropped by 5% and demand increased by      21% during the first quarter of 2021 (primarily driven by the automotive      industry), which could lead to an upward tick in the metal's      price. Demand in 2022 also increased, but by a marginal 2%. Keep      in mind, though, that the rise in no-emission vehicles could put pressure      on prices.
• Platinum mines are heavily concentrated in only      two countries: South Africa and Russia. This creates greater      potential for cartel-like action that would support or even      artificially raise platinum prices.

Investors should consider that all of these factors serve to make platinum the most volatile of all precious metals.

Palladium

Lesser known than the three metals mentioned above is palladium, which has more industrial uses. Palladium is a shiny, silvery metal used in many types of manufacturing processes, particularly for electronics and industrial products. It can also be used in dentistry, medicine, chemical applications, jewelry, and groundwater treatment.

The majority of the world's supply of this rare metal, which has the atomic number 46 on the periodic table of elements, comes from mines located in the United States, Russia, South Africa, Zimbabwe, Canada, Australia, and Finland.

Jewelers first incorporated palladium into jewelry in 1939. When mixed with yellow gold, the alloy forms a metal stronger than white gold. In 1967, the government of Tonga issued circulating palladium coins touting the coronation of King Taufa'ahau Tupou IV. This is the first recorded instance of palladium used in coinage.

Metalworkers can create thin sheets of palladium down to one-two hundred fifty thousandths of an inch. Pure palladium is malleable, but it becomes stronger and harder once someone works with the metal at room temperature. The sheets are then used in applications like solar energy and fuel cells.

The largest industrial use for palladium is in catalytic converters because the metal serves as a great catalyst that speeds up chemical reactions. This shiny metal is 12.6% harder than platinum, making the element also more durable than platinum.shorter, more succinct space.

Articles – Good topics for articles include anything related to your company – recent changes to operations, the latest company softball game – or the industry you’re in. General business trends (think national and even international) are great article fodder, too.

Mission statements – You can tell a lot about a company by its mission statement. Don’t have one? Now might be a good time to create one and post it here. A good mission statement tells you what drives a company to do what it does.

Company policies – Are there company policies that are particularly important to your business? Perhaps your unlimited paternity/maternity leave policy has endeared you to employees across the company. This is a good place to talk about that.

Executive profiles – A company is only as strong as its executive leadership. This is a good place to show off who’s occupying the corner offices. Write a nice bio about each executive that includes what they do, how long they’ve been at it, and what got them to where they are.