Investing In Precious Metals

By Geoffrey Michael | June 15, 2010 AAA
Investing In Precious Metals

Gold has been the universal symbol of wealth for civilizations throughout the ages. Ancient cultures created gold jewelry and early forms of money were crafted from gold. Though thousands of years have passed, the fascination with gold remains as strong as ever. (Want to learn more? Check out 8 Reasons To Own Gold.)

Investing in gold and other precious metals has been attracting a lot of attention lately. You've probably heard the ads proclaiming "gold has never been worth zero." The metal has, according to the ads, retained intrinsic value regardless of economic conditions. The gold bugs would have you believe that at some point in the future, your money won't be worth the paper it's printed on. Based on what has happened to the world economies over the past couple of years, their argument is gaining credibility and popularity in many investment circles. (Find out the history behind gold and paper currency in The Gold Standard Revisited.)

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Types of Metals
Gold is a popular metal and attracts most of the press, but it isn't the only metal out there to invest in. The three other major investment metals are platinum, palladium and silver. All have risen in price over the past several years as demand has increased around the globe. While many people associate precious metals with jewelry and coins, these metals are also used in industry. The emergence of China and India as significant players in world commerce has contributed to the higher demand for industrial purposes. (Just getting started? Check out A Beginner's Guide To Precious Metals.)

Gold is a critical element in the electronics industry as an integral part of many high technology components. It's an excellent electrical conductor, corrosion-resistant, chemically stable and a superior heat shield.

Platinum is found in medical equipment, computers and automotive parts. Softer than platinum, palladium is a key element in catalytic converters due to its ability to withstand oxidation and high temperatures. It is highly conductive and is sometimes used instead of gold in electronics. Palladium has a variety of other applications including raw material processing, photo processing, water purification, fuel cells, and the refining and purification of oil and natural gas.

Why Buy Precious Metals?
The U. S. government has taken dramatic action to combat a very severe recession. The results so far have been mixed, but the effect on the national debt is obvious. The Federal Reserve has been rapidly inflating the money supply, but at some point the record low interest rates will have to increase to stave off retail inflation. How successful this strategy will be, and how it will affect future economic growth, are open questions.

Concern for future inflation is one factor pushing commodity prices higher. Holding metals is a way of spreading portfolio risk during times of economic upheaval and war, and when inflation threatens currency values. To many people in this uncertain environment, buying metals represents a safe-haven approach to diversification and a partial hedge against equities.

Price History
Gold recently reached an all-time high of $1,252 per ounce, but is still well below the $873 reached in 1980 when adjusted for inflation ($2,287 based on U. S. Department of Labor statistics). It's up about 300% in the past five years and has displayed a fairly consistent uptrend during that period.

Platinum reached a high of $2,252 in 2008, but has backed off to the $1,500 area. When automobile manufacturers went on a buying binge in 2000 and 2001, the supply squeeze pushed the price of palladium to almost $1,100. It is now selling for less than half that amount. Silver is currently within striking distance of its 2008 high of $20.

Ways to Buy

  • Antique coins (many have collector value that exceeds the meltdown value)
  • Newly minted coins:

Gold: American Eagle, Canadian Maple Leaf, South African Krugerrand, British Sovereign, Vienna Philharmonic, Mexican Gold 50 Pesos, U.S. Mint 24K Gold Buffalo
Platinum: American Eagle, Australian Koala, Canadian Maple Leaf
Palladium: Palladium Canadian Maple Leaf
Silver: Canadian Silver Maple Leaf, Silver American Eagle, Austrian Vienna Philharmonic

  • Bullion – Bars are produced by some government mints, as well as private companies such as Johnson Matthey, Wall Street Mint, Credit Suisse, Engelhard, Produits Artistiques de Métaux Précieux (PAMP), Sunshine Minting and Pan American Silver



Outlook
There's no doubt that the demand for metals is on the rise. This doesn't necessarily translate into immediate price increases since the supply is constantly changing due to active mining and sales by large holders.

Before buying precious metals, do your own research. If you decide to buy coins or bullion, you will need a safe place to store them. Be prepared for volatility in the price, and unless you are an experienced trader, it's important to keep a long-term perspective. (For a comprehensive guide to precious metals, check out The Industry Handbook: Precious Metals.)

Catch up on the latest financial news in Water Cooler Finance: The iPhone Launch, Buffett's Lunch And BP's Lashing.

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