Invest in Precious Metals

Invest in precious metals

Precious metals play an important role in a well-diversified portfolio. The price of the metals is uncorrelated with the broad stock market, which means that they act as a protection in the portfolio. Having several uncorrelated assets contributes to a higher risk-adjusted return. Precious metals have played an important role historically for humanity, being used both as money and in technology. This is due to the unique properties of the metals.

What is a precious metal?​

Precious metals are among the elements that react very little with their environment compared to other metals. There are eight precious metals where the most famous are gold, silver, copper, palladium and platinum. In addition to these, ruthenium, rhodium, osmium, and iridium are also classified as precious metals.

Precious metals are unique because of their physical and chemical properties.

  • Conductivity: Silver is the element with the best conductivity of both electricity and heat. This makes the metal a critical component in, e.g. batteries, solar cells and electric motors.

  • Corrosion: Precious metals, especially gold, are also resistant to corrosion, which means that they are often used in products where it is important to avoid corrosion, e.g. in contacts and reflectors.

  • Catalyst: Several of the precious metals are used as catalysts. Platinum, Palladium and Rodium are used in car catalysts to purify the exhaust gases from the internal combustion engine.

How to invest in precious metals?

There are several different ways to invest in precious metals

  • Physical: You can buy precious metals directly and own the physical raw material.

  • ETCs (Exchange Traded Commodities): By buying an ETC, you can get exposure to the physical commodity without having to sort storage for the metal yourself.

  • Derivatives: Investment products that follow the price of precious metals but where you have a counterparty risk against the product’s issuer.

  • Shares: The share price of the mining companies that extract precious metals is strongly linked to the spot price. Mining company shares often move more than the underlying asset price because you also add a company risk. This means that the share goes up more when, e.g. the spot price goes up, and vice versa.

  • Funds: There are different types of funds. When you invest in a fund, you pay a fee for an expert (fund manager) to select the underlying assets that provide exposure to precious metals. A fund may include any of the options listed above. There are two types of funds:

    • Daily traded fund: Often actively managed, an expert reviews the holdings and rebalances at regular intervals.

    • Exchange-Traded Fund: A basket of securities that follows an index and is traded like a stock.

Examples of a fund focusing on precious metals are AuAg Silver Bullet and AuAg ESGO ETF.