Precious Metals 101: Gold, Silver, Platinum or Palladium?

What are precious metals?

Precious metals are rare metallic elements that are used as a store of value, in addition to their functional applications. Before the spread of paper money in the Middle Ages, gold and silver coins were the most common form of currency. You could say they kept their shine – both literally and metaphorically – unlike most base metals, which tend to dull or change colour over time. Today, the most widely acknowledged precious metals are:

  • Gold: To this day, many countries hold stores of gold in reserve to back up their currency. Gold is also a commonly held asset for many families around the world, whether in the form of jewelry, collective coins or gold bars. Internationally, gold accounts for a large amount of money tied up in precious metals.
  • Silver: Silver is a "semi-precious" metal that is more abundant in nature than gold. It has several industrial and household applications, including use in electronics, soldering and jewelry. Silver bars and coins are not as commonly used as an investment vehicle as gold is – though Warren Buffett has owned it – and the silver market is known for having a significant degree of volatility.
  • Platinum: Like gold and silver, platinum has long been used in jewelry, although it’s also an important component in catalytic converters used in the combustion engines of cars and trucks. It is rarer than gold or silver and is often more costly per ounce. However, because it is mined in such small quantities and only lightly traded, platinum price movements can be more erratic than gold or silver.
  • Palladium: Another member of the platinum group of metals, palladium has similar characteristics to platinum. The metal was only discovered in 1803 and is seldom used in jewelry but has a growing number of industrial applications.

The role of precious metals in the economy, then and now

Even after gold and silver coins went out of mass circulation, many national currencies were historically held to the "gold standard." That is, paper banknotes could theoretically be exchanged for gold that sovereign governments held in reserve. The money supply, therefore, was more or less fixed and gold prices remained stable since the gold supply seldom changed very much. 

Amid the turmoil and economic experimentation of The Great Depression, governments began to move away from this gold standard, allowing their currencies to float freely. Without the backing of a commodity, this so-called "fiat money," became more susceptible to currency market volatility and hyperinflation. Over time, however, the major central banks have been able to stabilize their currencies through prudent monetary policy.

Still, investors who believe fiat currencies are set for a fall may place more faith in precious metals than dollars, euros or yuan as a store of value. Unlike fiat money, which governments have the power to make more of, gold and other precious metals are naturally scarce, which is the basis of their value as financial assets.

Whatever your perspective, precious metals are a distinct asset class that may help diversify your portfolio and thereby limit overall portfolio volatility. They have traditionally been considered a good hedge against inflation over the long term. Gold bugs note that it takes about the same amount of gold to purchase a house today as it did in the 1930s, despite all that has happened in between.

Precious metals remain in demand for jewelry as well as industrial applications, such as electronics, which helps support their prices.

How to invest in precious metals

A valid argument can be made to allocate a portion of your portfolio to precious metals. But how? Here are three common ways investors can gain exposure to the asset class:

  • Physical holdings: Precious metals are the only commodities compact enough to make it practical for retail investors to hold in their physical form. You can purchase gold bullion products from small independent dealers, the Canadian Mint, or a large, trusted institutional dealer, such as a major Canadian bank.
  • Financial instruments: One easy way for retail investors to invest in the commodity is to buy mutual funds or exchange-traded funds (ETFs) that invest in bullion. The companies that manage these funds will hold physical bullion in a number of vaults. The funds' unit prices closely track gold prices. Like all funds, there may be management fees to consider.
  • Mining stocks: Investors can also invest in precious metals that are still in the ground by buying shares in mining, exploration or royalty streaming companies. These securities can potentially leverage changes in the price of the commodity because price increases or decreases may have an exaggerated impact on company profitability. 

Risks and caveats of investing in precious metals

As with all commodities, the prices of precious metals can be volatile. Their supply may be relatively fixed, but demand can swing. Ever since the United States abandoned its gold standard in 1971 (in the Bretton Woods Agreement), gold has tended to have a negative or inverse correlation to the U.S. dollar. That is to say, when the U.S. dollar is rising against other major currencies, gold prices tend to fall.

Precious metals prices can also be affected by geopolitical factors. Prices often rise when countries that produce gold go to war or are subject to sanctions. When central banks sell their reserves, as some did in the late 1990s, prices fall. Secondary metals with few sources of supply can see major price shifts as new mines commence production or close.

One other drawback of precious metals, other than the potential for the physical metal to be stolen or lost, is that they produce no actual income (as GICs, real estate or stocks might). Virtually all of gold's return comes from price changes, which can be unpredictable. Warren Buffett famously eschews gold for this reason. (While silver also produces no income, Buffett has said he likes that metal better because it has many uses.)

Why invest in precious metals?

Diversification. Many investors will invest in metals as a way to diversify their holdings with assets that aren't correlated with the stock and bond markets. In 2022, for example, when many markets reported double-digit losses, gold and silver held their value, and the price of platinum rose.1 For some investors, having some exposure to precious metals may reduce overall portfolio volatility.

How many precious metals are there?

Eight primary precious metals are produced in sufficient quantity to be used as a store of value for investment purposes. The most consistently cited precious metals are, in order of importance and market capitalization: gold, silver, platinum and palladium.

What is the most expensive precious metal?

In terms of price per ounce or gram, the most expensive precious metal is currently rhodium. The price of this silver-white metal is famously volatile, capable of swinging by thousands of dollars per ounce over the course of months. In terms of market capitalization, gold is by far the metal with the greatest. More than 200,000 tonnes of gold have been unearthed in history, trillions of dollars’ worth.

Where to store your precious metals safely?

Secure vaulted storage allows TD customers to purchase precious metals without the need for physical delivery. Select products purchased and stored with TD Secure Storage are held in a secure, fully insured environment at a vault operated by our trusted partner.

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