The volatility of the modern currency and securities markets create the need for an appropriate investment for investors who are looking for stability. As the Federal Reserve continues to try to prop up the stock market by printing money, investors need a place to secure their future. History has shown that the most reliable place to secure your money is investing in precious metals. The economy of China continues to underperform. And Europe has languished in an unresolvable recession for years. Unrest and civil war have plagued the Middle East in recent years. Gold, silver, platinum and palladium are the go-to hedges against inflation, systemic disasters, wars, uncertain markets and unstable governments.
It is also important to appreciate that precious metals are not just driven by their role as a currency substitute. Many precious metals have industrial uses that afford them a price floor. Precious metals prices also function as a sort of informal vote on the current state of government policies throughout the world. The metals markets act as an outlet for investors when they cannot find a home in other markets. Metals are far more than just an investment hedge. Let’s take a look at some things you need to know to engage successfully in precious metals trading.
Tracking spot prices
Any time you invest, it’s important to be able to track sport prices. One of the best places to check spot prices is Monex. Let’s say you need the spot price for gold. Monex gold prices are just a click away. The same goes for silver, platinum and palladium. Monex also offers the opportunity to easily and safely trade in precious metals.
Gold has long been the king of the precious metals. Gold is the precious metal that acts most directly as a de facto currency. While gold has some industrial use in the jewelry industry, its place in the world is largely as a hedge against the dollar and the euro. While investors are uncertain how a currency like they yen is going to perform against the dollar as the Japanese government tries to deliberately inflate its currency to support economic growth, the first place those investors go is gold. When the Greek government was in risk of default, the first resort of investors was to buy gold.
Gold also is the most pure inflation hedge in the world. Very little new gold is introduced to the market in any given year. Slightly under 2,500 tons of new gold are mined each year. This means that the new supply of gold in any given year is around 1% of the total supply. Essentially, gold has a set inflation rate of 1%, largely unchanged since the last of the major South African gold strikes were made in the late 1800s. Despite vastly increased incentives to find more gold, new gold discoveries have not beaten the pace of the last century.
An interesting angle on the gold market is the growth of India’s economy. India is already the world’s largest consumer of gold. India purchases more gold than the United States and China combined. And India’s economy still has a long way to go before it catches up to the Chinese standard of living. As more Indian households attain a degree of affluence, India will continue to exert upward pressure on the gold market for years to come.
The historical role of gold remains unchanged. When the world experiences fear, investors find gold. Even years after the financial crisis of 2007, the world economy is far from recovery. And recoveries come with their own risks. Don’t forget that the Great Depression was actually two separate depressions. One started with the events of 1929. But, a second one hit in 1937. Gold remains the preferred choice for investors worried about the future.
Silver is almost the diametric opposite of gold. The largest demand for silver is industrial. 40% of the world’s silver is purchased for industrial purposes. Silver is heavily used in the making of batteries. It is also a catalyzer, popular in the production of methanol and glycol. Silver’s industrial uses help to install a stronger price floor. It also insulates the silver trade against speculative bubbles, since silver is desired for usage, rather than just held.
Silver is also more popular than gold for use as legal tender, since the spot price of silver is much closer to regular currency prices than gold. Both the U.S. and Canadian governments mint silver coins that are popular with investors. There also a number of exchange-traded products valued against silver.
As driven by conservative political currents as most of the precious metals market is, there is one precious metal whose investors benefit from liberal political policies. Platinum is heavily used by the automotive industry in catalytic converters, the component in modern exhaust systems that removes pollution from emissions. The rise of more aggressive pollution standards in liberal political bastions such as California means increased demand for platinum. Platinum recovery from older automobiles also provides economic benefits to recycling programs and salvage companies. Platinum also has applications within the healthcare industry, particularly in chemotherapy.
Platinum has the virtue of being even less mined than gold. Global platinum mining is less than one-sixth the volume of gold mining. This makes platinum an excellent inflation hedge. More than other precious metals, platinum is driven by both clear industrial demand and solid investing interest.
Palladium has similar industrial uses as platinum. It is also a common material used in the production of catalytic converters by the automotive industry. Palladium is also popular in the manufacture of spark plugs, especially in the aircraft industry.
The largest speculative bubble in palladium occurred in 2001, when the Ford Motor Company started stockpiling palladium. Palladium peaked around $1,100 per ounce. Palladium also has experienced some downward pressure caused by the selloff of Soviet era supplies by the Russian government. Russia accounts for 44% of world palladium exports. Intriguingly, even after the bubble collapsed, the price of palladium did not drop significantly below the historic trend line. The price has since recovered to near bubble-era prices, thanks to broader demand for precious metals following the recent global recession.
Palladium can be a slightly difficult investment due to low liquidity levels. Unlike the other three popular precious metals, very little palladium actually circulates. It isn’t used in coins. The metal is relatively brittle and has little application in jewelry except as an alternative to platinum in the making of so-called white gold. Palladium prices track closely to platinum prices. There is a strong substitution effect between the two metals. However, traders should be aware that overall the effect is for platinum to push palladium prices lower. The question, long-term, is what the effect of increased demand for platinum will do to the price of palladium in the next decade. New production of palladium is similar in amount to platinum. This means that the relationship between the two metals is unlikely to breakdown anytime soon.
Precious metals remain one of the most viable investments on the planet. With the help of references such as Monex, tracking spot prices and making purchases in dependable precious metals investments is simple. In a volatile world economy, precious metals remain the most popular hedge. Growing industrial demand will continue to anchor prices going forward. Precious metals will have a place in your investment portfolio for decades to come.