In troubled economic times, investors often look to put their money into objects of real value, and precious metals prices reflect that kind of permanent value better than any investment on the market. In fact, every smart investor maintains a portfolio that includes some amount of precious metal.
In Gold We Trust
Perhaps the single most important factor in the stability of precious metals prices is trust. Unlike currency or industrial stock or even government bonds, all of which represent entities that are subject to manipulation and even collapse, gold and other precious metals are perceived as incapable of losing their lasting value. That is not to say that precious metals prices will not fluctuate or even become volatile at times. But it does mean that if or when those other entities collapse, even when there is no government and no currency to speak of, gold and other metals will remain valuable.
Some of the factors that influence precious metals prices, particularly the price of gold, include inflation. People can lose faith in paper money and history is filled with examples of this unfortunate occurrence. When that happens, of course, paper becomes almost worthless. Gold, on the other hand, has never been perceived as worthless.
War and political upheaval is another reason why gold investment is desirable. It is generally believed that even in the direst circumstances, gold can be traded for food and vital supplies.
The Electric Appeal of Silver
Like gold, silver is a metal of rare beauty and luster, making this metal desirable in and of itself. Currencies have been backed by silver, which has its own lasting value. But in the modern world, the main value of silver lies not in what it is, but what it can do. This amazing metal is an essential component of hundreds of industrial products. Electrical appliances, especially, utilize vast amounts of silver. What this means for precious metals prices is that the growth of emerging economies, China looming above all of them, determines the value of silver. As China and smaller, growing economies expand, people in those countries purchase luxury household items that are taken for granted in the west. Those appliances require silver.
But when those economies start to slow down, the price of silver takes a hit. Another factor that influences silver prices is the advance of technology, with new materials used in the place of silver. A good example is the photographic industry. Every picture taken with a conventional camera, every movie ever shot, used large amounts of silver in its film. Today, digital photography has replaced film and even Hollywood prefers digital “film” to good old-fashioned celluloid.
Similar future developments will have a significant impact on precious metals prices.
The Platinum Effect
Platinum, like silver, has widespread industrial applications. It also has the advantage of being more rare than gold. So, investing in platinum can be pricier to start, but can also have a high upside.
One wouldn’t think that something as seemingly unrelated as environmental activism could have a helpful effect on precious metals prices, but clean air legislation has required cars to install new and more sophisticated catalytic converters. Every one of those devices contains platinum. On the other hand, because it is used heavily in automobile manufacture, the fortunes of the auto industry can have a strong effect on the price of platinum.
Platinum’s “sister metal” is palladium, which has similar uses but is less expensively priced.
There are as many ways to invest in precious metals as there are factors that influence precious metals prices. For beginners, the futures market and mining stocks should probably remain off limits. But investment in physical metals or certificates for actual metal stored in a bank vault are a good place to start building wealth in the market.