101-14 Investing in Precious Metals, Gold & Silver

Precious Metals, Gold & Silver

Precious metals are typically traded on the Commodity Exchange (COMEX) part of the New York Mercantile Exchange (NYMEX).  Other non-precious metals are traded on the London Metal Exchange.

Typically the word precious metal refers to Gold, Platinum, Palladium, and Silver.  Precious means they are rare or have a high value.  The value of the metal is usually measured in Troy Ounces.

The price is determined by a mixture of supply and demand variables.

  • If supply is restricted, this increases the value of the metal.
  • If the demand for the metal outstrips supply, this increases the value of the metal.

Examples of demand include the purchasing of gold by the federal reserves.  This increases the demand for an already limited supply of gold pushes up the price.

If all the gold in the world were collected and smelted together, we would probably have a 25-meter cube.

Gold has no real discernible use apart from jewelry.

However, silver is different.

Silver is incredibly useful for industry, having the highest electrical conductivity of any element and the highest thermal conductivity of any metal.  Silver performs vital roles in electronics, photography, water purification systems, and even deodorant.  Silver is a natural germicidal agent like other heavy metals but is not toxic to humans.

Silver’s value tends to be more volatile than gold and can be impacted by the supply from the mining companies and from recycling used silver, but also by the demand from industry and investors.

Gold and silver are often seen as investments that can hedge against the devaluation of currencies.  Worries about the dollar and the euro, eventually losing most of their value drives investors to seek to collect as much gold and silver as possible.

One can easily invest in silver and gold by buying coins and bullion.  Of course, the price of silver means it is easier to accumulate in smaller amounts over time.  A 2018 1 oz American Eagle coin costs approximately $30, whereas the gold version of the coin sells for roughly $1600.

One can also invest in mining stocks specializing in exploration or excavation, or precious metal ETF’s, or even gold and silver futures.

Summary

Now you understand the basics of the Commodity markets and also the reasons people trade and invest in precious metals.

The final section in this introductory course looks at cash-based investment tools.

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