Types of Precious Metals You Can Invest In
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Types of Precious Metals You Can Invest In
Investing in precious metals has over time become more popular for various reasons. It certainly is not the ‘golden ticket (no pun intended) when it comes to financial security. But because of the options it provides, such as not being affected by either deflation or inflation, a history of holding its value, and probably the most popular reason, diversifying your portfolio, you can understand why investiture in precious metals, and particularly gold, is on the slow rise.
So what are the various types of precious metals available for investment? There are primarily five types, from the common such as gold and silver and copper to two you may never have thought of before, platinum and palladium.
Below we give you a brief outline and history of four of these metals, the ones that you can only use to invest in a precious metals IRA, plus a link to its individual page with further information.
Since the end of the gold standard in the early 1970’s, along with the fixed price of gold at $35 an ounce, gold has increased in value and interest. At the time of writing, the value of an ounce of gold was $1,190 and individuals are using it now as a way of both diversifying and increasing the value of their portfolios.
A Tendency To Hold Its Value: A simple look at any trading or value graph will show you that over time, especially through difficult economic times, gold maintains its value. It was only under the gold standard set by President FD Roosevelt that the value of gold dropped, deliberately.
Weak Dollar: Whenever the US dollar has fallen in value against other currencies (as was the case between 1998 and 2008) investors pour their money into gold for added security. Any mass buying of a stock, product or commodity ultimately sees its value increase and so between 1998 and 2008 the value of gold virtually tripled and then doubled again over the next 4 years from 2008. (See historic gold price chart below). There is a lot of chatter right now about the potential devaluing of the dollar over the next few years, whether or not that happens, the value of gold will continue to hold its value.
Inflation & Deflation: The US is experiencing relatively low inflation at the moment, but what we do know from history is that the value of gold increases, when inflation, the cost of living, increases. Inflation has been high here in the USA on five different occasions since the end of world war two. On those occasions (46,74,75,79.80) the return on the Dow Jones Average was as low as -12.3%, whereas gold was 130%. Deflation, which is when we see business slow down and the nation has excessive debt (i.e. the great depression of 1930) the power of gold increased.
Diversification: At the beginning of this page I mentioned that purchasing silver or gold, in particular, should be seen as a way to diversify to create a greater balance and stability on your returns. The best way to diversify your portfolio is to have your money in investments that do not correlate with each other. When you look at how stocks and gold perform over the same time period, you will see that there is a clear seesaw effect. When the value of stocks was very low in the 1970’s, the value of gold was high. The reverse was seen in the late 80’s and into the 90’s when stocks were high, the value of gold was low and when we had the stock market crash of 2008, what do you think happened to the value of gold? Well as you will see on the chart above, it went up. So gold should not be viewed as a single entity for wealth growth, but a commodity for diversification to help growth and create better stability, whatever the performance of the market.
Silver has been described as ‘the poor man’s gold’ due to its low value. Although this is true (the price of an ounce of silver at the time of writing is $17.13 compared to $1,190 for an ounce of gold) the ROI is the key to whether something is worse investing in, not it’s cost of purchase. Also, it is worth noting that gold and silver historically do not tend to rise and fall in value together. When one is doing well, we have seen the other performs less well. For example between November 2008 and the spring of 2011 (basically from the start of the last crash to the beginning of its recovery), although gold performed well, doubling in value, silver performed even better going from $12.21 an ounce to $51.52 an ounce, that is more than quadruple the return.
As an investor, ensuring that your portfolio is well-balanced and capable of weathering unpredictable economic climate is key to securing your financial future. Diversifying your portfolio is necessary if you want to be protected at all times, and investiture in gold or silver is a great way to do this.
It is important to realize that there is a difference between physical silver and paper silver, and the respective prices. Physical silver refers to the actual metal, which you have the option of storing in your home or in a vault belonging to a custodian. Paper silver refers to the financial instruments that are based on the spot physical prices. Such instruments include exchange-traded funds (ETFs), futures and so on. The advantage of owning physical silver is that you will get the reassurance of always being protected regardless of the changing economic environment. Silver can withstand inflation and a weak dollar, just like gold, which is not something that can be necessarily said about paper silver and stocks and bonds.
It is also important to carefully determine how much you are willing to invest in silver. Do not get carried away by the prospect of investing, just because the price is low, to the point where you risk other parts of your portfolio. Remember the idea is to diversify, not completely do away with other vehicles. The only way you are going to ensure financial security is if you see to it that all grounds are covered, as far assets go.
At the time of writing this content, the price of Platinum was just over $980 an ounce. Although that price is below the current price of God ($1191 an ounce), Platinum has been known to increase in value above the price of Gold. The reason for this is due to the fact Platinum is a rarer metal than gold or silver.
Its primary use is in the manufacturing of catalytic converters on motor vehicles. As the demand for emission control on cars increases, so does the demand for Platinum. Although the actual amount of Platinum used in each converter is small (ranging from 1-15 grams depending on the size of the vehicle) there are over 60 million cars manufactured each year (with a 3% yearly growth rate). So as the demand for vehicles increases, so will the demand for Platinum.
The mining of Platinum occurs in mainly two countries, South Africa and Russia. South Africa is the largest producer of Platinum with Russia second, although Russia is the biggest provider of Palladium (see below).
So why should you consider investing in Platinum? Well we go into this in more detail on our specific platinum investment page, but you may want to consider three main reasons:
1. There is a limited source of Platinum. It is rarer than gold and as already mentioned is it primarily mined in only two countries. Not only that, but the actual mining of platinum is costly, making it a metal that is mined on a limited capacity.
2. Because Platinum is resistant to corrosion, along with being highly durable, new uses for it are being discovered on a regular basis, making its demand increase.
3. Although the price of Platinum is fluctuating at present, historically, just like gold, its value has increased dramatically. As the chart below from InfoMine.com shows, since July 1996 where its value was under $400 an ounce, it rose to its peak in 2007 of over £2010 an ounce, (a value gold has yet to achieve) to bouncing around the $1,000 an ounce at present.
The reason why we have put Palladium at the end of the list is due to the fact you probably never considered it before as a metal to invest in, or you have never heard of it. Palladium comes from the very same group of metals as Platinum, yet it has the ductility and malleability of gold. A relatively new metal, it was discovered in 1803 by an English chemist.
The primary use of Palladium is within industry. Its usage is within multilayer ceramic capacitors which tend to be used in cell phones and laptops. Also, like Platinum, it is a component in the manufacturing of catalytic converters
Because it is in the same group of metals as Platinum, it is also mined in South Africa and Russia, along with Zimbabwe.
When it comes to creating a precious metals IRA, you may not have considered Palladium, but as we show in our list of precious metals approved for an IRA, Palladium can be added, if of course, it is the type that meets IRS approval.