Precious metals hold the same allure for traders and investors as they do for jewelers and bankers. Understand all there is to know about precious metals, including the different types and how to position yourself in the market.

What types of precious metals are there?

What is a precious metal?

What is a base metal?

How to trade or invest in precious metals

What affects the price of precious metals?

Are precious metals a good investment?

What are the different types of metals?

Investors have several metals to choose from. These are typically divided into "precious" or "base." The most well-known precious metals are gold, silver, platinum, and palladium, while the most well-known base metals are copper, lead, nickel, and zinc.What are precious metals?

Precious metals are rare, naturally occurring metallic elements that have intrinsic value. They typically do not oxidize or corrode and do not naturally lose their luster. The primary precious metals considered are gold, silver, palladium, and platinum, all of which are used in jewelry, but also have many different uses.

Throughout human history, precious metals have been used as currency and in jewelry. Recently, metals such as gold have been used in devices like iPhones and computer software. During periods of market uncertainty, some precious metals are seen as concrete stores of wealth and are referred to as safe-havens.

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What are base metals?

Base metals are common metals that naturally oxidize, corrode, or lose their luster. Examples include copper, lead, nickel, and zinc. These metals can be used to manufacture products like copper pipes or to create alloys such as Nichrome (a nickel-chromium alloy).

Copper is also a popular material for sculpture, with iconic examples including the Statue of Liberty, whose color comes from oxidized copper.

How to trade or invest in precious metals

Trading precious metals

Trading precious metals means that you will use financial derivatives like spread betting and contracts for difference to speculate on the rise or fall of prices. When trading with us, you can choose whether to trade precious metal futures, spot prices, and options.

You will use spread bets and contracts for difference to trade at these prices, so you will not need physical delivery of the underlying asset (such as gold or silver).Investing in Precious Metals

If you are not suited for speculative trading with spread betting and contracts for difference, you can always invest in commodity stocks and exchange-traded funds (ETFs).

Stocks allow you to indirectly engage with precious metals by purchasing shares in companies that are involved in their production and use. ETFs enable you to speculate on a variety of assets with a single investment, and then commodity ETFs (such as gold ETFs) are established to closely track the price of that metal in the underlying market.

Gold

For thousands of years, gold has been used to produce valuable goods. Today, gold is used in jewelry, decoration, and due to its conductivity, it is used in smartphones and computers that we use every day. It is also a safe-haven asset for many investors during market uncertainty.

Silver

Silver is a popular metal in industry due to its conductivity, antimicrobial, and ductility properties. These make silver versatile with a range of applications, including batteries, dentistry, and water purification.

Platinum

Pure platinum is used in jewelry and dental work. However, it is also popular as an alloy—for example, a platinum and cobalt alloy is used to make magnets. It is also used in certain chemotherapy drugs, particularly those that treat testicular and ovarian cancers, lung cancer, and lymphoma.

Palladium

Palladium is used in the production of catalytic converters for vehicles, which help reduce harmful emissions. It is also used in electronics, dental appliances, and as a component in certain types of chemical reactions.Palladium is a congener of platinum, which means that the two metals share the same structure, origin, or function. More than half of the palladium supply is used in automotive catalytic converters, which are essential tools for converting harmful gases such as carbon monoxide into nitrogen, carbon dioxide, or water vapor.

What affects the price of precious metals?

Supply and Demand

Like any product or service, a shortage of rare metals (or an increased demand for them) makes them more valuable. For instance, if a strike at a large silver mine disrupts production, the price of silver may rise in the short term.

Improvements in mining equipment can have the opposite effect, accelerating production and saturating the market—assuming demand remains constant, this would drive down prices.

Economic Uncertainty

During times of economic and political turmoil, precious metals are traditionally seen as safe havens due to their enduring value. We saw this theory in action in 2016 when the election of Donald Trump as the President of the United States caused a surge in gold as nervous investors flocked to its safe-haven status.

Industrial Output

Precious metals have a wide range of industrial uses, including in the manufacturing of automotive parts, medical equipment, electronic products, and jewelry. Additionally, new applications are continually being developed. As the demand for these goods grows, so does the demand for precious metals.

The Strength of the US Dollar

The value of precious metals is often inversely related to the strength of the US dollar. When the dollar is strong, it can make metals more expensive for holders of other currencies, potentially reducing demand and thus the price. Conversely, when the dollar is weak, it can make metals more affordable and attractive to investors, potentially increasing demand and raising prices.Given that precious metals are priced in US dollars, they are particularly susceptible to fluctuations in the value of the dollar. When the dollar declines, precious metals serve as a good store of value for the dollar—this means it could potentially drive up the prices of precious metals.

Interest Rates

Purchasing precious metals can be an ideal choice for fixed-income investors, especially when interest rates are low, resulting in lower yields on their investments. Therefore, decisions made by the Federal Reserve may guide investors towards these safe-haven opportunities, but the impact of the Federal Reserve on precious metals should not be overstated. More importantly, how interest rate announcements affect the value of the dollar is key.

Quantitative Easing

Purchasing precious metals often performs better in an environment of rising inflation. This is because quantitative easing (or money printing) dilutes the value of money in circulation, making the cost of purchasing assets seen as reliable stores of value higher.

Are Precious Metals a Good Investment?

Purchasing precious metals is considered a sound investment by many investors, with gold being particularly well-known for its safe-haven status. During periods of market uncertainty, investors often shift their funds into gold, and due to its applications in jewelry, electronic components, automotive parts, and industry, the demand for precious metals is typically high.

Purchasing Precious Metals Summary

Gold, silver, platinum, and palladium are precious metals sought after by traders and investors alike.

They have a variety of uses, but are most commonly found in expensive jewelry.Many factors can influence the price of precious metals, including supply and demand, economic uncertainty, and interest rates.

Many market participants view precious metals as a good investment, especially gold, which is known as a safe haven.

You can take positions on precious metal prices through spread betting and contracts for difference, or invest directly in precious metals.