Having uses in industrial and financial sectors gives precious metals high economic value in a variety of industries. As rare, naturally occurring metallic elements, precious metals can be used to make jewelry, electronic components, and critical automobile parts, which makes precious metals investing a challenging endeavor.
With the commodities trading market expanding to also include novice investors, precious metals investing has become a great way for savvy investors to diversify their financial portfolio, hedge against inflation, and protect assets from political instability.
For investment purposes, the four most commonly traded metals are gold, silver, platinum, and palladium, but their values and uses for each precious metal varies.
Although gold does have manufacturing uses, the majority of the gold demand comes from jewelry manufacturers and traders, which increases its value against other commodities. With gold’s use as a form of money and wealth, its value is less dependent on industrial needs:
Taking gold from the ground is a costly and time-consuming challenge which places more value on the precious metal.
Central banks can affect prices by hoarding or selling gold reserves, as well as their decisions on money supply policies.
With the U.S. dollar viewed as the world’s reserve currency, a weakening dollar typically benefits the value of gold.
With a wide variety of uses including jewelry, electronics, energy, and medicine, silver has been mined and used as a valuable commodity for over 5,000 years. While silver is a more affordable metal than gold and platinum, its value is still subject to a variety of industrial and economic variables:
As the increase of electronics and appliances grows in developing countries, the demand for these products creates an increased need for silver.
Industries dependent on silver to make various products may change as technology evolves to replace silver as an industrial component.
With numerous industries needing silver to produce products, as the global economy grows, the need and demand for silver will also increase.
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As an extremely rare element, palladium has multiple uses in the fashion, electronics, dental, and automobile industries. Unlike gold and silver which have traded for thousands of years, palladium wasn’t discovered until 1803. Economic factors affecting its value include:
With car makers relying on palladium to produce catalytic converters, demand for vehicles has a direct correlation with the price of palladium.
Rhodium can also be used to make catalytic converters which means the demand varies based on the supply of other metals.
South Africa and Russia supply a combined 75% of the markets palladium, which makes regional conflicts a risk to mining efforts.
Being a useful metal for industrial and investment purposes makes platinum one of the more intriguing metals. With more effort needed to extract platinum than gold, the cost to mine an ounce of platinum can be near twice the amount of mining an ounce of gold. Economic variables that could alter its price include:
Various business sectors including the automotive industry heavily rely on platinum to make catalytic converters.
With only 200 million ounces of platinum residing above ground, while gold has 5 billion ounces, the rarity of platinum makes it in high demand.
The demand for platinum occurs throughout the world with Europe, Japan, China, and North America the biggest users of the metal.