Silver, platinum and palladium: how to invest in these three precious metals?

Silver, platinum and palladium: three precious metals listed on the markets Photo: GettyImages

Silver, platinum and palladium: three precious metals listed on the markets Photo: GettyImages

In the stock market, you can invest in many precious metals. In addition to gold, retail investors can, like professionals, invest in metals such as silver, platinum and palladium. The latter have their own characteristics and find many applications in various industries. The dynamics of their prices depends on many factors.

Summary:

  • Summary

  • Investments in silver, industrial and “speculative” metal

  • Invest in platinum, a metal associated with the automotive industry.

  • Invest in palladium, the more expensive platinum

Summary

Investments in silver, industrial and “speculative” metal

Invest in platinum, a metal associated with the automotive industry.

Invest in palladium, the more expensive platinum

Investments in silver, industrial and “speculative” metal

Silver is less rare and less expensive than gold. Because of its more attractive price per ounce, it is also referred to as “poor man’s gold”. However, it is a tangible asset, of which nearly 75% of the annual production comes from industry, with the remainder for jewelry and investments (coins and bars).

The qualities of silver metal are numerous. It is malleable, lightweight, antibacterial, insoluble in water, and has excellent thermal and electrical conductivity. It is included in many alloys. Considering these assets, it is used in advanced technologies (solar energy, nuclear energy, electronics, telephony, nanotechnology, medical applications, contact mechanisms, etc.). It is also found in some types of batteries and looks set to benefit from the development of the electric vehicle.

Silver production is about 25,000 tons per year. However, it has stagnated for several years due to chronic underfunding from mining groups. Mexico is the world’s leading producer, ahead of Peru and China. These three countries account for almost half of the production.

For investors, the gold/silver ratio is a widely used indicator to gauge the attractiveness of the white metal. It is calculated by dividing the price of an ounce of gold by the price of an ounce of silver. When it is above 80, silver is generally considered undervalued compared to the yellow metal.

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The price volatility of metallic silver is higher than that of gold. Indeed, the market is narrower and therefore offers less liquidity guarantees. While gold is seen as a safe haven, silver shows a more “speculative” profile.

Invest in platinum, a metal associated with the automotive industry.

On the planet, platinum is thirty times more rare than gold. About 40% of production is used for the production of catalytic converters for vehicles with internal combustion engines. As a result, tighter regulations on CO2 emissions in the automotive industry have spurred demand. Jewelry also makes up 40% of production, especially with large retail outlets in the US, China, Japan and India.

Platinum is malleable, ductile, non-toxic, dense, high temperature resistant and corrosion resistant. Along with industrial sales, it finds many applications in the field of medicine (retinal implants, pacemakers, cancer treatment, etc.).

Platinum production is regularly below 200 tons per year. South Africa is by far the world’s leading producer (75% of production), ahead of Russia and Zimbabwe. However, it is important to note the importance of recycling. The latter accounts for 30% of the world’s platinum production.

For investors, platinum is not a given in terms of investment. Thus, historically, bars and coins account for less than 2% of demand for platinum. However, this is the way to invest and diversify. Therefore, its sharp drop during the health crisis has attracted the attention of many speakers.

Risk in futures contracts

Metals are quoted on the futures markets. Investors enter into contracts with different maturities (one price, one maturity). Very specific terms are used for this type of product. Contango defines a specific situation where the price of a commodity or a traded metal is higher in the long term. Therefore, investors expect prices to rise. Conversely, when prices for future maturities are lower, we speak of backwardation. The spot price is the price of a product with immediate delivery. ETCs (Exchange Traded Commodities) from the ETF (Exchange Traded Funds) family allow individuals to invest in commodities and metals. They are actually indexed to futures contracts in the futures markets.

Invest in palladium, the more expensive platinum

Perceived as a noble and rare metal, palladium is one of the platinum group metals known as PGMs. However, its density is lower than that of platinum. It also has a lower melting point. Like platinum, it is used in the production of catalytic converters for automobiles and therefore contributes to the reduction of pollutant emissions.

Palladium is also used in the manufacture of electronic components used in telephony and even in the manufacture of dental alloys. Finally, palladium is used as an electrode in fuel cells. Thus, the eventual success of hydrogen as an energy source could create a demand for fuel.

The annual production of palladium is similar to the production of platinum and is about 200 tons. Russia, South Africa, USA, Canada and Zimbabwe are the main producing countries.

In financial markets, the price of palladium is higher than that of gold. Its price particularly benefited from Dieselgate in 2015, prompting manufacturers to increase production of gasoline-powered vehicles (equipped with a catalytic converter) to the detriment of diesel-powered vehicles. Now the development of electric vehicles could affect the demand for palladium.

ESG and mining: are they inherently incompatible?

Within the framework of Socially Responsible Investments (SRI), the ESG rating includes three components, namely Environmental, Social and Governance. Mining groups tend to score poorly on environmental criteria. As the grade and quality of deposits declines, the mining industry spends more energy and water to extract ore. The negative impact on the local population is often highlighted. Management can also be distinguished, with mines operating in countries with a “changing” legal framework. However, the mined metals are now required for the transfer of energy (wind, sun). This can make ESG investors “schizophrenic”…

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