Precious metals definition
Naturally occurring rare chemical metallic element with industrial applicability used as a ‘store of value’
Precious metals are naturally occurring metallic elements with distinguished chemical and physical properties that make them ideal for industrial use.
What are precious metals?
Metals can only qualify as ‘precious’ if they are rare. The value of precious metals depends on the principles of supply and demand. The prices of precious metals can diminish if new effective mining methods or improvements in current methods are discovered.
Lesser-known metals also referred to as the platinum group, include rhodium, ruthenium, osmium, palladium, iridium and platinum. Elemental metals such as gold represent status and power.
Coinage metals – gold and silver – are very popular because of their use as a hedging asset against inflation, systematic financial concerns, wars (currency, trade, etc.) and political instability.
Precious metals have a history of being used as a currency. The demand for precious metals is largely determined by their use as investments rather than practical or industrial applications.
The chemical and physical properties of precious metals include:
- Lustrous or shiny
- Very high electrical and thermal conductivity
- Higher melting points when compared with other metals
- Resistant to corrosion and oxidation
- High density
- Malleable – can be drawn into shape without breaking
Precious metals in large quantities are described as bullion and are usually traded on commodity markets. Bullion’s most defining factors are purity and mass.
The most common purity is 99.9 per cent and is known as “Three nines.” It is almost impossible to get 100 per cent purity because as more impurities are removed, it becomes more and more difficult to remove the remaining tiny amounts of impurities.
People invest in precious metals because they cannot be inflated. The options that precious metal investors have include:
- Bullion – this is a good option for those that want physical ownership of precious metals and have a place to store them. The only downside is that it is illiquid.
- Common stocks and mutual funds
- Commodity exchange-traded funds (ETFs) – investors can buy and sell precious metals without actually owning the asset.
- Futures and options
Precious metals risk
No investment is free from risks. The price of precious metals can decline in times of economic growth and resurgence. It may prove difficult to sell precious metals during economic instability due to volatility.