Back
ETF-INVESTMENT

Precious metals - Gold, Silver & Platinum

When most people think of precious metals, they probably think of gold first. The yellow metal is considered a "safe haven" by the majority of investors and is particularly in demand in times of crisis. However, there are other precious metals besides gold that you can invest in. Here is a brief overview of precious metals and the different ways to invest in them:

Precious metals vs. other metals

A short throwback to chemistry class: we only talk about rusting when iron reacts with oxygen, for other metals this process is called "corrosion". This is caused by a redox reaction in which a metal donates electrons to oxygen in the air. The oxygen absorbs electrons in the process and is thus reduced. Corrosion only takes place when oxygen has a greater readiness to enter into a redox reaction than the metal in question. This readiness is called "redox potential". For precious metals, such as gold, the redox potential is higher than for oxygen, so these metals do not react with air at normal temperatures.

In addition to their corrosion resistance, precious metals are also heavy metals with high density and correspondingly high weight.

Enough chemistry lessons... In addition to gold and silver, platinum group metals are also precious metals. Specifically, these are platinum, ruthenium, rhodium, palladium, osmium and iridium.

In general, precious metals are very scarce, as they are rarely found on our planet. Especially gold and silver have been used for thousands of years as trade goods, jewelry and for minting coins. Meanwhile, platinum in particular is also heavily used in industry.

Precious metal prices

As with almost everything, precious metal prices are determined by supply and demand.

Supply is determined by new mined quantities and the sale of stocks. Unlike fiat currencies, for example, of which more and more can be printed, there is only a certain amount of gold, silver, etc. on our planet. This offers a certain protection against inflation - as long as Papa Elon doesn't colonize planets made of pure gold ;-).

The demand is determined by various factors. With increasing prosperity, more and more people are affording jewelry made of gold and silver in particular, and precious metals are also needed in industry. As with almost everything, people speculate with the metals, while others try to secure their assets with precious metals.

Gold - The crisis metal

Gold is probably the best known and one of the most sought-after metals in the world. While it is used in dentistry and electronics, we know it mainly as a jewelry item and as currency.

The first gold coins were minted as early as the 6th century BC, and the U.S. dollar was also linked to gold until the 1970s. Although this link to gold no longer exists, central banks still have huge gold reserves and thus play a major role when it comes to the price of gold.

Because of gold's long history, it is often considered a safe haven, especially when banks and the political system are unstable. Accordingly, gold is a good diversification in the portfolio and dampens volatility in times of crisis.

Silver - the industrial metal

Silver was also used as a means of payment for a very long time and the metal is also very popular as a piece of jewelry or for the production of silverware, as it is significantly cheaper due to the higher silver deposits. However, unlike gold, silver is now largely used by industry and is therefore much more volatile. It is needed for its antibacterial properties, good electrical conductivity and heat conduction in electronics, battery technology, photovoltaics and in the medical industry. The demand for silver is therefore strongly dependent on the development of the relevant industries.

Platinum

Platinum is still significantly rarer than gold - over 10 times more gold is mined each year than platinum. The greatest demand for platinum comes from the automotive industry, which uses platinum for exhaust catalytic converters in diesel vehicles, followed by the jewelry industry. Since the price of platinum is heavily influenced by the production of combustion cars, the price could come under further pressure as the share of electric cars increases.

Furthermore, platinum mines are almost exclusively located in Russia and South Africa, posing a risk for cartel-like actions that could affect the platinum price.

Palladium

Palladium is in contrast to the other three metals rather unknown and is mostly used by various industries. Palladium is a shiny, silvery metal and is largely used in electronics and in the automotive industry for exhaust catalytic converters. It is not quite as popular as platinum in the jewelry industry, but is occasionally found as a gold-platinum alloy, also called "white gold".

Investment Opportunities

Physical

Probably the most classic form of investment in precious metals is to buy them in physical form in bars or coins. When buying physical precious metals, the main factors to consider are transportation costs and the premium for minting the coins. Additionally, there is the question of where to store the bars and coins, which is often another cost factor. An obvious disadvantage with physical gold, silver & co. is that you can neither buy nor sell physical precious metals quickly. However, especially the physical form of gold is very popular, because you could pay with coins in times of crisis and they are easy to transport, in case of emergency.

ETCs (Exchange Traded Commodities)

ETCs provide easy and uncomplicated access to precious metals and other commodities. They can be easily traded on the stock exchange and, in the case of precious metals, usually track the performance of the spot price (price for immediate delivery) for single or multiple precious metals. Unlike an ETF, the capital invested in an ETC is not a special asset, but only a debt security of the provider and is therefore subject to issuer risk. When choosing an ETC, care should accordingly be taken to ensure that the commodities are physically collateralized. In the case of a physically collateralized gold ETC, for example, physical gold bars are deposited with a trustee. If you still want to hedge against a decline in the value of the dollar against the euro, you should choose an ETC that hedges the euro.

Gold ETC:
Amundi Physical Gold ETC (ISIN: FR0013416716)

Gold ETC (EUR Hedged)
WisdomTree Physical Gold - EUR Daily Hedged (ISIN: DE000A1RX996)

Silver ETC:
iShares Physical Silver ETC (ISIN: IE00B4NCWG09)

Silver ETC (EUR Hedged)
Xtrackers Physical Silver EUR Hedged ETC (ISIN: DE000A1EK0J7)

Precious Metals ETC:
WisdomTree Physical Precious Metals (ISIN: DE000A0N62H8)

Precious metal oriented shares or funds

In addition to a direct investment in precious metals, it is also possible to invest indirectly in companies whose business is linked to precious metals. Investors can choose between individual stocks, active and passive funds (ETFs). ETFs follow the principle of passive investing and track several stocks that are involved in precious metals. These companies correlate with precious metals prices, but are usually exposed to higher volatility.

UBS Solactive Global Pure Gold Miners UCITS ETF (ISIN: IE00B7KMNP07).

VanEck Vectors Gold Miners UCITS ETF (ISIN: IE00BQQP9F84)

CFDs and Derivatives

There are countless instruments that have precious metals as their underlying. Contracts for Difference (CFDs) are usually very speculative and react very strongly to even small price fluctuations. In addition, there are derivatives such as warrants and certificates, which are mostly used for trading and are rather unsuitable for long-term investments.