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

Silver, platinum and palladium: the three precious metals registered in the markets.  Photo: GettyImages

Silver, platinum and palladium: the three precious metals registered in the markets. Photo: GettyImages

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

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  • Investments in silver, industrial and “speculative” metal

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

  • Invest in palladium, more expensive platinum

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Investments in silver, industrial and “speculative” metal

Invest in platinum, a metal associated with the automotive industry

Invest in palladium, more expensive platinum

Investments in silver, industrial and “speculative” metal

Silver is a less rare and cheaper metal than gold. Due to its more attractive price per ounce, it is also called “poor man’s gold”. However, it is a tangible asset, almost 75% of its annual output is mostly consumed by industry, with the rest destined for jewelry and investments (coins and bullion).

There are many qualities of silver. It is plastic, light, antibacterial, insoluble in water and has excellent thermal and electrical conductivity. It is part of many alloys. Given these assets, it is used in advanced technologies (solar energy, atomic energy, electronics, telephony, nanotechnology, medical applications, contact mechanisms, etc.). It is also found in certain types of batteries and appears to benefit from electric vehicle development.

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

For investors, the gold/silver ratio is a widely used indicator to measure 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 silver is greater than that of gold. Indeed, the market is narrower and therefore offers fewer guarantees of liquidity. While gold is seen as a safe haven, silver exhibits a more “speculative” profile.

Invest in platinum, a metal associated with the automotive industry

On the planet, the rarity of platinum is thirty times higher than the rarity of gold. About 40% of production is used for the production of catalytic converters for cars with internal combustion engines. As a result, tighter regulations on CO2 emissions in the automotive industry have boosted demand. Jewelery also accounts for 40% of production, with particularly significant outlets in the United States, China, Japan and India.

Platinum is malleable, plastic, non-toxic, dense, resistant to high temperatures and resistant to corrosion. In addition to industrial sales, it finds many applications in the medical field (retinal implants, pacemakers, cancer treatment, etc.).

Platinum production is typically less than 200 tons per year. South Africa is the leading producer in the world (75% of production), ahead of Russia and Zimbabwe. However, it is important to note the importance of recycling. The latter accounts for 30% of global platinum production.

For investors, platinum is not a given from an investment perspective. Thus, historically, bars and coins represent less than 2% of demand for platinum. However, this is a way of investment and diversification. Therefore, its sharp decline during the health care crisis attracted the attention of many speakers.

The risk of futures contracts

Metals are quoted on futures markets. Investors negotiate 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 traded commodity or metal is higher in the distant future. Therefore, investors expect price growth. Conversely, when prices are lower than future maturities, we are talking about backwardation. The spot price is the price of the product for 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, more expensive platinum

Considered 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 thus contributes to the reduction of pollutant emissions.

Palladium is also used in the production of electronic components used in telephony and even in the production of dental alloys. Finally, palladium is used as an electrode in fuel cells. Thus, the possible success of hydrogen as an energy source could increase demand.

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

In the financial markets, the price of palladium is higher than that of gold. Its price especially benefited from Dieselgate in 2015, which forced manufacturers to increase production of gasoline cars (equipped with catalytic converters) to the detriment of diesel ones. Now, the development of electric vehicles may affect the demand for palladium.

ESG and Mining: Are They Inherently Incompatible?

Within the framework of socially responsible investing (SRI), the ESG rating includes three components, namely: environment, social aspects and governance. Mining groups are generally poorly evaluated on the environmental criterion. As the level and quality of deposits decline, the mining industry uses more energy and water to extract ores. The negative impact on the local population is often emphasized. It is also possible to allocate management, while the mines operate in countries with a “variable” legislative framework. However, mined metals are now necessary for the transition of energy (wind, sun). This can make ESG investors “schizophrenic”…

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