Investing in Precious Metals, Real Asset Exposure

Over the long term many investors have viewed investing in precious metals as part of their overall investment strategy.

One attraction of the precious metals in commodity trading is their high economic value.

With such wide industrial applications, and strong future demand predicted, traders and investors will continue to follow these metals closely.

We should also remember that as a group the precious metals are rare and it is this scarcity which also gives them the status as stores of value.

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The precious metals, and particularly gold, are also seen as a stable haven when there is a sudden crisis or when a world conflict is a strong possibility.

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Given the important role the precious metals play in the world economy, from electronics to healthcare to autocatalysis, all the major commodity indices are represented by them though the weighting varies from index to index.

The most widely known and traded of the precious metals are gold and silver, both with wide industrial applications including electronics and healthcare, as well as jewellery and coinage.

Gold is considered a key precious metal when we consider the need to preserve the real value of assets as central banks around the world increase the money supply, and so create the conditions for higher inflation.

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The serious credit crunch in the United States in 2008 has highlighted systemic failures in the banking system and the repercussions will be significant and widespread. Investors will follow the movement of precious metal prices closely.

In this financial environment precious metals, as real assets, are seen as an insurance policy to protect wealth from the depreciation in currencies, principally the US dollar.

Silver is also viewed as a store of value in addition to its wide industrial applications, which makes it attractive to commodity traders and investors.

A key measure often watched by keen precious metal investors is the gold-silver ratio, which has been followed for over 100 years.

As a rule silver tends to be very volatile and it spiked at almost $50 in 1980, caused in the main by one precious metal market participant trying to accumulate the metal.

Commodity traders can purchase gold futures and silver futures or use the exchange traded commodity funds (ETF or ETC) route, and there is also the possibility of buying gold and silver bullion bars and coins.

If you thought gold and silver were great examples of the scarce precious metals, there is a member of this group that is even rarer, namely platinum, a metal which has important applications as a catalyst in the automobile industry.

Consider that only around 5 million troy ounces of this precious metal is mined each year, compared to 80m troy ounces of gold and almost 550m ounces of silver each year.

Platinum offers another route for investing in precious metals and this can be achieved using platinum futures on NYMEX.

To ensure the high standard for the precious metal, the platinum ingots are hallmarked and assayed.

The other significant member of the Platinum Group Metals that offers potential in commodity markets is palladium.

Most extensive deposit of palladium ore are found in the Transvaal, South Africa and also in Montana, USA and Norilsk, Russia.

Due to the wide industrial applications of palladium and its scarcity as a precious metal, it attracts significant investment interest and commodity trading activity mainly through palladium futures contracts and using a precious metal ETF.

With the strong growth in the emerging BRIC (Brazil, Russia, India, China) economies expected to continue for the foreseeable future, demand for commodities and specifically the precious metals, is expected to remain strong.

Against such a background, investing in precious metals through one or more of the available options is likely to play a notable role in the long term strategy for protecting capital.

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