To be considered a precious metal, a metal must be rare, occur naturally, and be chemically and radioactively stable. This combination of traits gives the precious metal its financial value. Unlike modern floating currencies, which only have fiat value, a precious metal is considered a store of value. For this reason, investment in precious metals is often used as a hedge against currency fluctuations.
Four precious metals have an ISO 4217 currency code: gold (XAU), silver (XAG), platinum (XPT), and palladium (XPD). To be saleable on commodity markets, precious metal ingots must be formally assayed and hallmarked.
Gold
Gold is the best-known precious metal. Although it is no longer used in standard coinage, gold continues to be popular in jewelry. Gold also has many industrial applications, especially in electronics. Globally, mines produce about 82 million troy ounces of gold each year.
When other factors in the economy make the value of fiat currency uncertain, investors often turn to gold as a hedge against financial instability. This makes the price of gold an excellent inverse predictor of the state of the economy: The higher the price of gold, the less reliable are other investments. At the time of writing, gold has reached a record high price of over $1,400 USD per troy ounce.
Silver
Besides gold, silver is the other precious metal which has been used extensively in coinage. Sometimes silver alloy coins can still be found in circulation, a carryover from the days of the silver standard. Silver is popular in jewelry. It also has many industrial applications, although it is no longer used extensively in photographic development, due to the introduction of digital photography. Of all the precious metals, silver is the most reactive. Globally, mines produce about 547 million troy ounces of silver each year.
Silver can be used as a hedge against financial instability, but is less effective than gold because its price is more volatile. At the time of writing, silver has reached a price of over $25 USD per troy ounce. However, unlike gold, the price of silver is not directly linked to the economic forecast.
Platinum
Platinum is popular in modern jewelry. Its best known industrial use is in catalytic converters, but it also has several other electrical uses. Platinum salts are toxic, but metallic platinum does not commonly react with other elements to create those salts. Metallic platinum itself is not toxic. Globally, mines produce about 5 million troy ounces of platinum each year.
Due to its low production level, the price of platinum is more sensitive to supply and demand than either gold or silver. Production or delivery issues can send the price of platinum skyrocketing, as happened when platinum reached a record high price of nearly $2,300 USD per troy ounce in March 2008. When supply is steady relative to demand, the price of platinum usually runs about a third of that. Because of its sensitivity to supply and demand, platinum is not recommended as a hedge against financial instability.
Palladium
Palladium is popular in modern jewelry, but its primary use is in catalytic converters and electronics. Palladium also plays a major role in fuel cells, which may cause its price to rise in the not too distant future. Globally, mines have been producing record amounts of about 2.4 million troy ounces of palladium each year.
Due to its low production level, the price of palladium is more sensitive to supply and demand than either gold or silver. In addition, 44% of the world’s palladium comes from Russia. Previous politically-caused delays and disruptions in palladium shipment from Russia have caused investor panic and prices to skyrocket to record highs of over $1,000 USD per troy ounce. When supply is steady relative to demand, the price of palladium usually runs about a third of that. Even a company as large as Ford is subject to the vagaries of the palladium market, having lost nearly $1 billion USD in 2001 when it attempted to stockpile against a possible palladium shortage.
The exact supply of palladium on the market is difficult to anticipate, because the Russian government has been selling off government stockpiles of palladium which had been accumulated prior to 1990. The size of these stockpiles is unknown, but the amount sold off per year ranges between 1.6 and 2 million troy ounces per year.
Because of this volatility, palladium is not recommended as a hedge against financial instability. However, its use in fuel cells may make it a good investment for the future.
