7701 / What are considered precious metals for investment purposes?

For investment purposes, precious metals are traditionally considered the chemical elements gold, silver, platinum, and palladium. These are classified for their unique characteristics, such as luster, resistance to tarnish or corrosion, chemical stability, and rarity. Apart from most all other elements, the “precious metals,” like gold, silver, and, to a much lesser degree, platinum, are the most common hard asset investment options given their historical use as currency by nations. All four share the same properties that have made gold and silver especially desirable as money.¹ Thus, these metals are highly sought after materials as stores of wealth that historically have held value over time against other forms of investments, and especially as compared to the value of paper currencies.

Investors can invest in precious metals both directly by purchasing the asset in the form of actual bullion or in coins, and indirectly by investing in the stock of companies that either invest in precious metals or produce them. Another way to invest in precious metals is to purchase precious metal ETFs (exchanged-traded funds). Investment in a precious metal ETF should be considered to be an investment in the fund itself rather than in the underlying precious metal(s). In that sense, precious metal ETFs are more like investing in stock or a mutual fund. However, such ETFs are noteworthy because of their unique characteristics. For one, they are used to determine the current price (the spot price) for the metals, and second, they allow the investor to take delivery of the physical underlying metal if desired. This discussion focuses on direct investment in those assets commonly called precious metals in the form of bullion or coins.

Gold, silver, and platinum are the most common investment metals of the four, while palladium, being new to the investment metals market, currently has fewer investment options. Unlike some other investments, precious metals and coins generally have a high degree of investment risk, including loss of principal, and the markets can be very volatile and are currently largely unregulated.