Precious metals: a liquid financial instrument

Precious metals are a group of rare earth metals, also called noble metals. They include gold, silver, platinum, and several other metals of the platinum group: palladium, osmium, ruthenium, iridium, and rhodium.

Precious metals as a financial instrument

The sphere of application of precious metals is wide enough - industry, jewelry, dentistry, pharmacology, etc. Another important field of work with precious metals is financial investment. There are many reasons for this:

– во-первых, многие из перечисленных металлов использовались в качестве «твердой» валюты намного раньше появления бумажных денег (особенно золото, серебро) и были универсальной валютой для любой страны – ценность играла не государственная принадлежность монеты, а ее состав и вес;

– во-вторых, несмотря на отказ от системы обеспечения валюты золотом и вывод из оборота монет из драгоценных металлов (кроме коллекционных образцов), многие банки до сих пор содержат часть своих средств в виде некоторого количества драгоценных металлов. Именно данное положение позволяет драгоценным металлам стать одним из самых распространенных товаров для обмена между банками разных стран, а также одним из важнейших биржевых инструментов.

Today the relevance of precious metals is very high. Let's look at each of these metals separately.

Investing in Gold

Gold is currently one of the most important precious metals on earth, in addition to having the longest history of use. Because the metal is not susceptible to corrosion and its quantity is limited, it has long been the material of choice for coinage, i.e., it was then that the first understanding and reflection of the term "liquidity".

Fig. 1. Dynamics of the price of Gold.
Fig. 1. Dynamics of the price of Gold.

If you look at the situation as a whole, then gold prices since 2000 (about $280-300 per ounce) increased almost sixfold (up to 1800 in 2012, and if you take 2011 - almost to 1925, which is a historical maximum). At the moment the price has stabilized at 1750 dollars per ounce, however gold has a high potential. Many analysts say that the value of the metal will continue to rise in the next few years, exceeding the level of 2000 dollars per ounce. There are quite a lot of preconditions for that: at the moment the situation in major currencies (American dollar and euro) is quite unstable. Investors are beginning to look towards shelter currencies (Swiss franc, pound sterling, Japanese yen) and precious metals, which makes gold a reserve currency again, as it was before.

For a number of precious metals (gold, silver) there is a term "currency metals". Such metals can be used for savings. At the current moment, gold can again be fully called a "currency metal," as its popularity as a means of accumulation is growing.

Investing in Silver

Silver - is also one of the most important precious metals on earth with a rich history and a wide range of applications. The first mentions of silver mining are dated five thousand years ago in Syria, although there is reason to believe that silver has been known to people since ancient times, as it was originally only in native form and did not create the need to smelt it from ore. Because of its properties, silver has long been considered a sacred metal, used in alchemy and medicine. Like gold, silver was also used to make coins, although of lesser value than gold, but of greater value than other metals such as copper, bronze, etc. To this day silver is still used to make coins, i.e., it is also "currency metal"although its role has been somewhat diminished of late.

Fig. 2. Dynamics of silver prices.
Fig. 2. Dynamics of silver prices.

To consider the returns, just look at the historical data for the last 5 years: in 2008, an ounce of silver was worth about $ 16.5, in 2012 - $ 34, which shows the growth in value more than twice as much (In 2011, there was a historical maximum in value per ounce of nearly $43). According to many analysts, the value of silver will also continue to rise in the coming years, although not on the same scale as the rise in the value of gold - the estimated value of silver will be $45-50 per ounce. This is not enough to make silver a reserve currency, but it is enough for silver to remain one of the profitable ways to investThe other important detail that speaks in favor of this is the rather large reserves of silver. Another important detail that speaks in favor of this is the rather large reserves of silver. The world reserves of this precious metal are estimated at 570,000 tons.

Investments in Platinum - an object for speculation

Platinum - platinum is one of the most actively and widely used noble metals. The sphere of application of platinum is rather wide, from jewelry to medicine, but it is most widely used in engineering. This metal is known relatively recently if we compare it with gold and silver, because it appeared in Europe only in the 18th century, and before that time (until 1748) it was mined only in America. For a long time the metal was underestimatedSince it had no use, its value was half that of silver.

An interesting historical fact: because of similar physical properties to gold, platinum was used by counterfeiters to reduce the mass fraction of gold in coins, so the platinum available at court in 1735 was ordered by the King of Spain to be drowned in the sea.

However, as the properties of platinum became more thoroughly understood, its value began to increase dramatically. Literally a century after its introduction to Europe, platinum had already acquired monetary function - For example, Russia used to issue 3, 6 and 12 ruble coins in platinum. At present, platinum coins are not as common as gold and silver, but they are being produced, which confirms the monetary function of platinum and makes it investment instrument.

Fig. 3. Platinum price dynamics.
Fig. 3. Platinum price dynamics.

There are several other historical paradoxes associated with platinum: its cost varies greatly. Even if we do not take into account its initial undervaluation, the fluctuations in its value over the past 10 years may seem somewhat strange: the historical maximum in the value of platinum (over 2060 dollars per ounce) was registered in May 2008. At the same time, gold price was around $890 per ounce, i.e. less than twice as high. As of today, platinum's value is more than $120 below that of gold - $1,622 vs. $1,751. Compared to gold (and silver), platinum is much less stable, making it a less interesting instrument for long-term investing, but turns it into an object of speculationwhere what matters is not the final cost, but its fluctuation.

Predictably, Platinum's value will continue to riseThe price of gold is not as stable as the price of gold, although it is probably not as stable. In the nearest couple of years, its estimated cost may come to $1,850-1900 dollars per ounce. However, we should not exclude the fact that platinum may rise unpredictably up to $2,200 per ounce and stay at the previous level (about $1,700 per ounce).

Platinum group metals and investments in Palladium

The platinum group metals include 6 metals, including platinum: ruthenium, rhodium, palladium, osmium, iridium. These metals were discovered relatively recently, and their quantity is small compared to that of gold and silver. They are used primarily for technical purposes (many of these metals are used in the nuclear power industry).

Fig. 4. Palladium price dynamics.
Fig. 4. Palladium price dynamics.

The greatest interest in this case is palladiumThe use of the product is somewhat broader, since it is used in electronics, engineering, and jewelry (e.g., for obtaining the "white gold" – сплава золота и палладия). Как и платина, он является монетарным металлом, однако монеты из палладия выпускаются крайне редко и в ограниченных количествах.

Since palladium is a precious metal, it is traded on stock exchange and over-the-counter markets. In a number of countries, including Russia, both individuals and legal entities are legally allowed to open metal accounts with banks not only in gold or silver, but also in palladium.

Over the past 5 years the price of palladium has increased quite strongly - from $370 per ounce in 2008 to $700 in 2012 (the historical maximum price was marked in 2011 - about $820 per ounce). According to analysts' estimates, the value of this metal will continue to riseIn the next few years it may reach $850-900 per ounce, which makes palladium quite an interesting instrument for investment.


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