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Precious metals investment terms A to Z

Precious Metals

A precious metal is defined as a rare, naturally occurring chemical element that has high economic value and is chemically resistant. In the past, precious metals served as a currency. Now they are an investment or industrial commodity.

Eric asks:

Eric thinks about starting investing on his own. He can’t make up his mind about what to invest in.

Eric, the Beginner

Eric, the Beginner

As I told you, I would like to start investing on my own, but I don’t know what to invest in. I’ve been listening to you guys talking so much about investing…
John, the Trader

John, the Trader

That’s a very good decision, Eric. Investing is a difficult task, but it is very rewarding, trust me.
Prof. Jill, the Investor

Prof. Jill, the Investor

Yes, John’s right. But you need a lot of patience and knowledge to succeed.
Read the whole discussion

The best known precious metals are gold and silver. They are both very useful in industry, but their popularity is mainly due to their use in arts, jewelry and coinage. Other precious metals include ruthenium, rhodium, palladium, osmium, iridium and platinum. Of these, platinum is the one most commonly used.

Market prices of Precious Metals

Metal Price (per kg as of Jul 1, 2011) Price (per ounce as of Jul 1, 2011)
Platinum 55,363 1,722
Rhodium 64,304 2,000
Gold 47,679 1,483
Iridium 33,759 1,050
Palladium 24,338 757
Ruthenium 5,787 180
Silver 1088 33.85

Why are precious metals precious?

There are three reasons. First of all, they are very rare. Secondly, they have a high market value. If new sources of a precious metal are discovered, we can expect its price to drop. On the other hand, if demand for it rises, the price can rise. Finally, they are chemically resistant. They are corrosion-proof, they don’t react with water or steam and they don’t dissolve in the vast majority of acids. They dissolve only in a substance called the royal water.

Gold and silver, apart from their economic or industrial use, can also play an economic role. They are used to store value and to hedge against inflation or economic downturn. They can also be an excellent vehicle for investment or speculation purposes.

Monetary history of precious metals

Gold and silver have a very long monetary history. They were used as a medium of exchange for thousands of years. This was done in two ways, either by issuance of coins and bars or by issuance of banknotes (much later) and other paper instruments backed by gold or silver reserves (such as in the gold standard).

With the decline of gold mining and the fast growth of 20th century economies, gold’s share in the markets decreased. At the beginning of World War I the world moved to a fractional gold standard and then, after the Bretton Woods Agreement of 1944, to a convertible currency system. Over time the gold standard has been replaced by fiat currency. The last country to abandon the gold standard system was Switzerland – gold backed 40% of the value of the Swiss franc until 1999, when Switzerland decided to join the IMF.

The other precious metal with a rich monetary history is silver. The name pound sterling comes from the fact that it initially represented one troy ounce of silver. In the 19th century the silver standard was very popular around the world, however, after the discovery of large deposits of silver in America, many countries turned to the gold standard. The decrease in silver’s value could have led to a decrease in currency value, and ultimately to economic downturn. Many nations sought to avoid that. With the beginning of the gold standard, silver coins dropped out of circulation. The United States stopped minting silver coins in 1969.

The least known metal that has monetary history is platinum. It has the ISO currency symbol XPT. It used to serve as legal tender in 19th century Russia, where coins “from pure Ural platinum” were minted. In November 1983 the Isle of Man, and in the second half of 1988 Australia and Canada, issued platinum legal tender bullion coins.

Please note that fiat (unbacked by precious metals) money is not a new phenomenon in the world’s monetary history. There were many attempts to put such a standard in place in the past – each time these attempts ultimately failed (in a hyperinflationary way in most cases). Will this time really be different?

Precious metal that became a common metal

Aluminum is an example of a precious metal that became a common metal. Although it can be very easily found in many places, in the past its excavation was extremely difficult and expensive. That made it extremely valuable, at one point even more valuable than gold. In 1855, during Exposition Universelle, bars of aluminum were exhibited alongside the French crown jewels. Napoleon III’s most important guests used cutlery made of aluminum, while those less important used those made of silver.

Rare metal, but not a precious one

Bismuth and tellurium are two examples of extremely rare metals that do not have high prices. The price of bismuth is only about 15 per kg.

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