When you think of precious metals, chances are the first two that come to mind are gold and silver. Most people would be hard-pressed to name five precious metals off the top of their heads.
As you invest, you often hear that precious metals make great safe-haven investments. So, you’ve looked into gold bullion, silver coins, and maybe even some physical platinum, but are these all your choices?
There are several metals that are considered “precious” and act as solid safe-haven investments. So, if you’re not interested in buying silver and gold coins or you want to practice diversification within your safe-haven holdings but don’t want to stray too far away from precious metals, you’re in luck; you have several options.
What Are Precious Metals?
By definition, precious metals are rare, naturally occurring metallic chemicals that hold significant economic value. The vast majority of precious metals will not oxidize (rust) under normal environmental conditions, providing longevity in the value placed on them.
For example, you’re able to wear your gold ring and silver necklace any time you’d like. While they may collect dust and need a good polishing here and there, your ring and necklace will never rust or decay.
Moreover, due to the rarity of gold and silver, these metals maintain a significant value that often grows in times of economic uncertainty.
Why Investors Are Attracted to Precious Metals
Precious metals are a common component of successful investment portfolios, especially during economic downturns. These investments provide protection from market volatility, and often see price growth during economic declines, making precious metals a great store of value when economic and market conditions are uncertain.
Precious metals are attractive during positive economic times as well. Many of these metals are used in the manufacturing of electronics, automobiles, and even batteries, helping to keep the industrial and technology sectors alive.
That value makes precious metals a go-to asset class to include in any well-diversified portfolio.
How to Buy Precious Metals
When most people think about buying precious metals, they usually think of buying silver and gold bars and coins by the troy ounce. Although that is an option, there are several ways to gain exposure to the precious metals market, especially to alternative metals that aren’t typically minted into coins.
1. Buy Physical Precious Metals
One way to go about investing in precious metals is to buy hard assets like ingots and coins or even buy gold bars through Vaulted. Often referred to as bullion, for some precious metals these coins and bars are available at market price from various websites or at your local coin or pawn shop.
2. Buy Precious Metals Exchange-Traded Funds (ETFs) and Mutual Funds
If you’re not interested in having bars and coins made out of high-value metals in your home or safe deposit box, you have the option to invest in precious metals without physically possessing a single coin.
There are several exchange-traded funds (ETFs) and mutual funds that are centered around investments in the precious metals market. These funds use assets pooled by a large group of investors to buy physical precious metals or shares of stock in industrial or mining companies that focus on the production of precious metals.
Taking the ETF and mutual fund approach gives you the ability to step back and let the pros handle your investments for you. Moreover, like most other investment-grade funds, precious metals ETFs and mutual funds generally practice heavy levels of diversification, protecting your investments from any sudden decline in the value of one or more of the fund’s holdings.
3. Buy Mining Stocks
Without mining companies, there would be no precious metals on the market. These companies are rewarded when spot prices for the commodities they mine are high and feel pain when market prices fall.
As a result, the stocks that represent these mining companies ebb and flow with the values of the commodities they’ve centered their business around. Thus, by investing in the mining companies that produce the precious metals you’re interested in, you’re getting indirect exposure to the precious metals market.
Pro tip: You can earn a free share of stock (up to $200 value) when you open a new trading account from Robinhood. With Robinhood, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.
Precious Metals Other Than Gold and Silver
Gold and silver are great safe-haven investments, but if you want to practice diversification within the precious metals asset class, there are several other metals to choose from. Some of the most popular investments include:
Copper is often referred to as a precious metal, although by the strictest definition, it’s not. For one, copper oxidizes under normal environmental conditions. Moreover, the metal is vastly available around the world, missing the rarity threshold.
Nonetheless, due to its extensive uses, the metal is considered by some to be precious, and is an investable asset regardless.
To mine copper, mining companies dig pit mines and collect copper ore, which are materials known to contain copper and, in many cases, iron compounds.
Copper has a wide variety of commercial and industrial uses. The majority of copper is used in electrical applications because the metal is a great conductor of electricity. Copper is also commonly used in components that keep motors running.
Iridium is a metal that’s part of the platinum group of metals. It is a hard, brittle metal with a silver look. Iridium is extremely hard, has a very high melting point, and is one of the rarest elements in earth’s crust, making it overwhelmingly valuable.
As is the case with traditional precious metals, iridium doesn’t oxidize under normal environmental conditions. It is among the most corrosion-resistant known metals. Aside from its industrial uses, it is a prized collectible asset due to its rarity and high value.
Iridium is produced in two ways. Most commonly, it is a byproduct of nickel mining, as nickel is found in the same layer of the earth that iridium is. However, there are also mining companies that focus on the mining of platinum ore, which tends to be rich in iridium.
Like most precious metals, iridium has many uses. Most importantly, it is used as a hardening agent for a wide range of platinum alloys. These alloys are used for tipping pins and compass bearings.
The precious metal is also used in crucibles and equipment used at high temperatures as well as a source for heavy-duty electrical contacts.
Lithium is a versatile precious metal. Although it is deposited around the world, found in rocks and brines, it is always found in low concentrations, making it quite rare overall.
Lithium is a relatively soft, silvery metal used in various applications around the world. Lithium salts, the raw material from which lithium is developed, can be found in many areas around the world. These salts are found in underground deposits of clay and mineral ore, in geothermal brines, and even dissolved in ocean water, and there are a wide range of extraction methods.
Lithium is used in a wide array of applications. Most notably, the precious metal is used in some batteries, including those used in electric vehicles, solar power systems, and marine applications. Many point to the use of the metal in electric vehicle batteries as the catalyst for the recent gains in value it has experienced.
Lithium is also known as a stabilizer in the world of psychiatric medicine. Lithium compounds are used to treat some serious mood disorders, including bipolar disorder, major depression, and schizophrenia.
Osmium is another precious metal in the platinum group. The metal is hard and brittle, and has a silvery-blue hue. Osmium is one of the rarest metals found in the earth’s crust and has multiple applications, leading to its high economic value.
Osmium can be found naturally in platinum-bearing river sands in North America, South Africa, and the Ural Mountains of western Russia, but its concentrations are so low and difficult to find that osmium is more efficiently produced as a byproduct of nickel refining operations.
Compared to other precious metals, osmium has relatively few industrial uses, but is useful in multiple applications. Osmium is often found as a component of platinum alloys, and has also been used in fountain pen tips, instrument pivots, needles, and electrical contacts.
Palladium is a prized precious metal among investors. It is highly resistant to corrosion and bears an attractive silvery-white appearance. Palladium is a relatively soft metal and is particularly rare — significantly rarer and more expensive than silver or gold.
Palladium is found in very small concentrations in nickel and copper ore. However, because so much nickel and copper ore are processed, these small concentrations collected as a byproduct can add up to a substantial secondary income stream to mining companies.
If you own a vehicle, there’s a strong chance you own a small amount of palladium because the metal is likely present in your catalytic converter, its most common application. However, it’s not the only use of the metal.
Palladium is used in medical applications like blood sugar test strips, surgical instruments, and dentistry. The precious metal can also be found in aircraft spark plugs, electrical contacts, and even jewelry.
Platinum is a very soft metal with a white-silvery look. The name platinum comes from the Latin “platino,” meaning little silver. Not only is the precious metal highly resistant to corrosion, it has high levels of conductivity and maintains stability at high temperatures.
Platinum occurs naturally deep inside the earth’s crust and is generally mined in deep pit mines found in South Africa.
Platinum is recognized as a metal commonly used in jewelry, but bling isn’t this precious metal’s only thing. It also has several applications in the medical industry, including in dental work, medical equipment, and laboratory equipment. You’ll also find platinum used in some of the world’s strongest magnets. Finally, with its high levels of conductivity, platinum is often used in electrical contacts and fine resistance wires.
Rhodium is an ultra-rare, silvery-white, hard metal. Like others in the platinum group, rhodium is highly resistant to corrosion under natural environmental conditions.
Rhodium is a very rare metal, naturally occurring only in small concentrations. It is generally mined as a byproduct of other mining activities. This is yet another precious metal commonly found in small concentrations in nickel deposits; it is also found in platinum ore.
Rhodium is a versatile metal with several commercial applications. Rhodium is used in jewelry and catalytic converters. However, the metal is most commonly used as an alloying material in platinum and palladium alloys that are found in airplane spark plugs and medical and laboratory equipment.
Finally, ruthenium is yet another member of the platinum family of metals. The silvery-white metal is hard and brittle, yet incredibly shiny, and will not tarnish.
Ruthenium is primarily collected as a byproduct of nickel mining. The metal is extracted through a series of chemical processes that separate it from other platinum group metals like platinum, palladium, and osmium.
Ruthenium has multiple commercial uses. It is commonly used as an alloying agent in platinum jewelry. It’s also used as a hardening agent in platinum and palladium alloys, which are found in electrical contacts designed for severe wear resistance.
Interestingly, ruthenium is an important component of various solar panels. The metal is used to convert solar energy into usable electrical energy.
Pros and Cons of Investing in Precious Metals
Precious metals are hot commodities that are just about always in high demand, so it makes sense that many people want to invest in them. However, as with any investment vehicle, investments in precious metals come with advantages and disadvantages.
Pros of Precious Metals Investing
Some of the most significant benefits to investing in precious metals include:
- Stability. Precious metals aren’t known for volatility. Investments in this category are generally stable, and these investments can provide a shelter against economic hardship as safe havens.
- Predictability. With the exception of those used largely as industrial materials, like copper, precious metals have an inverse correlation with the economy. When economic conditions are negative, investors ditch stocks and squirrel their money away in safe havens like precious metals. Conversely, when economic conditions are booming, investors ditch precious metals to dive into the stock market. Therefore, by following economic trends, you’ll be able to correctly predict the direction of most precious metal prices.
- No Credit Risk. When you own precious metals, you own that metal. When it’s time to sell, you can turn that metal into cash. When investing in a company through stocks — or even in a municipality through bonds — you’re accepting the risk that the organization may default and you may lose a significant portion or all of your principal investment. That’s not the case with precious metals — at least in terms of owning the hard assets. You own a real, physical asset and aren’t dependent on any particular company or government succeeding in order for your investment to hold its value.
Cons of Precious Metals Investing
Although there are plenty of reasons to be excited about investing in precious metals, there’s always a downside. The most significant cons to investing in this category include:
- Slow Growth. Investing is all about growth, but precious metals are stable. These commodities tend to experience slow, steady price growth, whereas the right stock picks can result in significant gains over a short period of time.
- Numismatic Markup. Precious metals bullion comes with a numismatic markup. Essentially, creating coins and bars takes work, which costs money. As a result, you’ll pay more per ounce for coins and bars than the spot price of the precious metal you’re investing in.
- Liquidity. If you hold physical precious metals, it may take time to find a buyer who’s willing to pay a reasonable price. As a result, certain precious metals investments come with liquidity risks.
Should You Invest in Precious Metals?
Precious metals have a place in just about every investment portfolio out there today. Due to their rarity and the generally high level of demand for these metals, they provide a level of stability that few assets on the market have the ability to provide, making them a perfect asset class for the safe-haven allocation within your portfolio.
So, it’s not necessarily a matter of if you should invest in precious metals, but a matter of when.
As a result of the relationship between precious metals and the global economy, when economic conditions are positive and markets are bullish, it’s best to keep your precious metals holdings to a minimum. On the other hand, when economic conditions falter and markets fall into bear territory, it’s time to rebalance your portfolio, putting an emphasis on precious metals and other safe-haven investments.
Precious metals investing is about much more than investing in gold and silver bullion. There are several different types of precious metals and multiple ways to invest in them without even holding a piece of the metal in your hand.
Like any investment, it’s important to do your research and get an understanding for what makes precious metals move in value before risking your first dollar.
Nonetheless, with the price stability and shield from inflation offered by this rare class of metals, investments in precious metals are an important part of most well-balanced investing portfolios.