Investing in precious metals: alternatives to gold investment

When it comes to investing in precious metals, the first thing that comes to mind for most investors is gold. In fact, gold is considered by many experts to be a “safe haven” in times of uncertainty and is particularly in demand when fears of monetary devaluation increase. But you can’t just invest in gold as a precious metal. Silver, platinum, palladium and rhodium are also popular precious metals that are often in gold’s slipstream. We show you how to invest in precious metals, which precious metals are eligible and which factors influence the return.

What are precious metals and what are they besides gold?

Precious metals are metals that are very stable and resistant to corrosion. They do not react, or only to a very small extent, with water or air at normal temperatures – unlike iron, which starts to rust when in contact with water. All precious metals are heavy metals – i.e. metals with a particularly high density and corresponding weight.

Precious metals include gold (Au), silver (Ag) and the platinum metals. In addition to platinum (Pt), there are a few other metals that are ‘close to platinum’ in the chemical periodic table – especially in the 5th and 6th periods and in groups 8 to 10. These are ruthenium (Ru), rhodium (Rh), palladium (Pd) and osmium (Os) and iridium (Ir).

What all precious metals have in common is that they are very rare in nature. Since ancient times, gold and silver have therefore been the most sought-after raw materials. Both precious metals have been used to mint coins and make jewellery for thousands of years. Platinum has not been so popular in the past, but more recently it has been valued as a valuable material for jewellery and for minting coins.

Platinum is particularly sought after because of its good properties for high quality industrial use. This also applies to the platinum metals palladium and rhodium.

Good to know: Gold, silver and platinum have established themselves as commodities in the financial markets.

What factors determine the evolution of precious metal prices?

As in all markets, the price of precious metals is determined by supply and demand. Supply is determined, on the one hand, by the quantities extracted and, on the other, by the stocks of precious metals offered for sale.

Various factors are relevant to demand: the need for jewellery making and industrial use, speculative considerations and the desire to secure assets and invest in tangible assets with ‘stable value’. Precious metals are often considered safer than cash. Gold in particular has always been sought after as a financial investment.

Until the end of the so-called Bretton Woods system in the 1970s, the main currencies were still indirectly linked to gold via the dollar. This gold link no longer exists. Nevertheless, almost all central banks still hold larger gold reserves than available foreign exchange reserves. Therefore, central banks’ gold policies always have some impact on the gold price.

The price of gold often indicates the direction of the prices of other precious metals. If gold becomes more expensive, the prices of the other precious metals rise and vice versa. However, this is not a law of nature. The individual precious metal markets follow their own rules and the relationship between the respective precious metal price and the gold price can fluctuate greatly.

Important to know: The gold price and other precious metal prices are usually quoted per troy ounce. The mass in troy ounces corresponds to the apothecary ounce (1 ounce = 31.1034768 g) and always refers only to the precious metal content of pieces of metal, for example in gold bars or in gold coins.

How to invest in precious metals?

Anyone looking to invest money in precious metals will first encounter classic precious metal investments in physical form by buying bars or coins. For gold and silver, many offers can be found from well-established myths, but investors have to search comparatively longer for platinum, palladium or even rhodium bars. Gold, silver and platinum are the most common coin metals. However, when it comes to physical investments, there is always a question of safe storage.

In the meantime, however, there are alternatives to classic investments in physical form. With securities, investors can include various precious metals in their portfolio.

Take a look at our range of gold and silver here!

ETCs (Exchange Traded Commodities) with a precious metal reference

These are exchange-traded certificates whose performance is linked to specific commodity prices, usually replicating the spot price. Precious metals ETCs are an alternative to physically buying precious metals, but they also carry risks. Like all certificates, ETCs can suffer losses, up to and including a total loss.

Meanwhile, investors can also find shares in companies involved in mining or trading precious metals. However, the corresponding shares do not necessarily move at the same pace as the precious metal and can fluctuate more sharply in price. This creates a serious risk for investors. Shares fluctuate a lot depending on several factors such as investments, discoveries of new places to dig, etc.

Investment funds with precious metal shares and precious metal ETFs in the portfolio

Investors can now also find many active and passive funds with precious metals exposure. These funds follow the principle of risk diversification and invest in a majority of precious metal-oriented stocks or replicate the corresponding index. Active funds, on the other hand, try to outperform their benchmark, while passive ETFs limit themselves to replicating as closely as possible.

However, precious metal ETFs that track pure precious metal prices are not authorised in the EU. Even with active and passive funds with a precious metals reference, investors must expect losses due to volatility.

CFDs and other derivatives with precious metals as underlying assets

Contracts for Difference (CFDs) are highly speculative instruments that react sensitively to small price changes and are used by expert traders. In addition, there are a number of other derivatives for precious metals speculators, such as warrants, leveraged certificates or other speculative constructions. However, such instruments are not suitable for long-term investment and are very risky.

Advantages and disadvantages of investing in precious metals

Anyone who wants to invest money in precious metals should research the pros and cons of a precious metals investment.

Pros

• Precious metals are valued by many experts as a crisis-proof investment opportunity.
• In the case of precious metals, private investors can invest not only in securities but also in physical property.
• Investment experts use investments in precious metals to diversify their portfolios, as the price development of the different investments usually does not run in parallel.

Cons

• No investment is crisis-proof – even precious metals can be subject to sharp fluctuations and, in very few cases, lead to large losses.
• Physical assets must be kept safe. This usually involves additional costs.
• Despite their reputation as ‘safe havens’, precious metals are subject to regular and sometimes sharp fluctuations in value. Due to their high volatility, investments in precious metals are risky investments.

What should I consider when investing in precious metals?

Unlike fixed-income investments or equities, pure precious metal investments do not provide an ongoing return. Returns are based solely on price developments. In times of low interest rates, this classic disadvantage of investing in precious metals has become relative, but it still exists.

Precious metals may, under certain circumstances, offer a possible stability of value and a possible ‘real’ value preservation effect, especially in the long term, but there is no guarantee of this.

Given the illusions of some investors, we caution against viewing precious metals essentially as a high-certainty investment. Precious metals investment is above all a risky and speculative investment. Speculating on a particular price trend is a clear risk – not only because prices fluctuate widely, but also because they are subject to a high degree of forecast uncertainty. Even recognised experts are often wrong in their predictions about the value of precious metals.