Are Precious Metals a Good Investment?

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Contributor, Benzinga
August 10, 2023

Considering investing in precious metals but not sure if they are your best choice? With an historic track record of steady performance along with being a great hedge against inflation, it's no wonder that more investors have been considering precious metals to further diversify their savings.

Precious metals have unique attributes as a savings tool and can be a great option for investors looking to diversify, but it is important to understand the risks and rewards before making a decision. This article takes a look at the pros and cons of investing in precious metals, helping you make an informed decision when it comes to your investments. It is not, however, a substitute for financial advice. You should always speak with a financial advisor before making any investment decision and determine whether or not a particular investment is the right choice for your goals.

What Are Precious Metals?

Precious metals are a group of metallic elements that have traditionally been valued for their rarity, beauty and unique properties. These metals have a long history of use in human civilization, dating back thousands of years to ancient times.

Precious metals share a few characteristics that make them staple ingredients in many industries, including superb conductivity, a high melting point, malleability, ductility and resistance to corrosion. The term precious metals isn't a rigid or even a scientific classification. It's more of an economic one.

Precious metals are just that: rare, naturally occurring metals that traditionally have economic value. The four precious metals that are most commonly traded in financial markets are gold, silver, platinum and palladium. Four more include rhodium, ruthenium, iridium and osmium. Gold is the most well-known of the precious metals for investors, followed by silver.

Platinum and palladium are rarer and more expensive than gold and silver, but they also have unique properties that make them unique assets. For example, they are fantastic catalysts for a wide range of useful chemical reactions. The most well-known use of platinum and palladium is converting harmful exhaust gasses from combustion engines into harmless waste products in catalytic converters.

It's worth noting that copper is not usually classified as a precious metal, despite being a highly useful metal. Copper is significantly more abundant than true precious metals. However, copper is a vital material in the global economy and has been utilized as a useful addition to investment portfolios for its diversification benefits and its potential as an inflation hedge.

The Pros of Precious Metals

Investors have turned to precious metals as a part of their already diverse investment portfolios for several reasons. Here are a few key factors to consider.

  1. Diversification: Precious metals can be a great tool for diversification, as they aren't heavily correlated with other asset classes such as stocks and bonds. By including precious metals in a portfolio, investors can add a traditionally steady layer of stability to their portfolios.
  1. Inflation hedge: Precious metals are often viewed as a hedge against inflation. The supply of precious metals is limited, while the supply of fiat currency can be increased by central banks.
  1. Safe-haven asset: During times of economic uncertainty or geopolitical turmoil, precious metals have historically performed steadily as investors and consumers have heralded them as valuable for centuries. This perception drives more precious metals investments in uncertain times which, in turn, can make it a great asset to add strong layers to an otherwise diverse portfolio.
  1. Industrial demand: Precious metals have a wide range of industrial applications, from electronics and medical devices to automobiles and renewable energy technology. As global demand for these products continues to grow, the demand for precious metals is likely to increase as well.

It's worth noting that trading precious metals does come with risk like all kinds of investing. Precious metal prices can be volatile, and they are subject to fluctuations in supply and demand, as well as changes in global economic conditions and government policies. Additionally, not all precious metals are created equal in terms of investment potential, and some may be more suitable for certain investment strategies than others.

While precious metals may not be appropriate for every investor or investment strategy, and you should always speak with a trusted advisor before investing, they’ve traditionally offered a range of potential benefits to an otherwise well-diversified portfolio. As with any investment, it's important to consider your investment goals, risk tolerance and time horizon before making investment decisions.

Which Precious Metals Are the Most Common Investments?

When considering investing in precious metals, there are technically eight options to choose from: gold, silver, platinum, palladium, rhodium, iridium, osmium and ruthenium. While all these metals have unique properties, gold, silver, platinum and palladium have traditionally been the most popular choices for investors.

Gold has been the most common choice for many investors. It has been a store of value and steady asset for thousands of years, with a history of maintaining its value over time. It's highly liquid too, making it easy to buy and sell. While gold can be volatile in the short term, it has often shown resilience over the long term, making it a common investment for anyone looking to diversify their portfolios.

Silver is a traditionally more affordable alternative to gold, which is why it's also been a top choice for many precious metals investors. However, the price of gold and silver aren't as heavily correlated as you might think. They are both well-known precious metal assets, and both have performed steadily in times of uncertainty. Silver is affected more by factors influencing its supply and demand than gold is, which heavily contributes to its greater volatility compared to gold.

Platinum is less accessible to many investors because it's rarer than gold and silver, and it can be much more difficult to mine. Its unique physical and chemical properties make it highly sought after in the electronics, automotive and jewelry industries, leading to a traditionally stable demand for the metal. Platinum prices can be volatile, but it may be attractive to some investors because of its unique applications and typically higher base value than gold or silver.

Palladium is a similar story. It's also highly valued for its industrial uses, particularly in catalytic converters in combustion engine vehicles. Palladium is even rarer than platinum and is significantly more expensive most of the time. The price of palladium price is volatile, but again, some precious metals investors have sought it out because of its unique attributes.

Rhodium, iridium, osmium and ruthenium are not typically recommended for individual investors because of their extremely limited supply and high prices. If you thought 1 ounce of gold sounds absurdly expensive for its size, these metals likely aren't your best option for an investment. Just 1 ounce of rhodium costs about $10,000, more than five times the price of gold.

These fringe precious metals are primarily used in specific industries, such as aerospace and chemical, and typically have a less-stable demand than gold, silver, platinum and palladium. This factor may change as other industries mature and innovate.

Best Precious Metals Trading Platforms

Precious metals can be a bit more difficult to invest in than stocks, but a few great platforms make it a breeze. Advantage Gold, Birch Gold Group, Red Rock Secured, American Hartford Gold and Augusta Precious Metals are some of the top precious metals dealers.

All these platforms offer direct delivery purchases as well as IRAs. Advantage Gold specializes in IRA rollovers and has a great selection of investment options. Red Rock Secured is a possible choice because of its low fees, low minimum investment requirements and fantastic reputation. Birch Gold Group, Augusta Precious Metals and American Hartford Gold are top choices for investors looking to learn everything you need to know about investing in precious metals because of their stellar educational resources.

So Are Precious Metals a Good Diversification Tool Right Now?

Whether precious metals are a good diversification tool right now depends on your individual circumstances and investment goals. While they can provide a hedge against inflation and diversify your portfolio, they also come with risks such as volatility and limited liquidity. Before making investment decisions, it's important to do your research and speak with a financial advisor. This article is not intended as a substitute for financial advice and is for information and educational purposes only.

About Henry Stater

Henry is an expert in all things crypto. He stays up to date with all the latest coins, platforms and technologies in the field. He has particular expertise in the burgeoning decentralized finance ecosystem and loves trying out all the new platforms. He also always follows major events in other financial markets and geopolitics as a whole, especially when an event’s effects ripple through the crypto market.