Let’s talk precious metals. Those rare, naturally occurring elements of high economic value.
But just why are precious metals so . . . precious? And there’s other ones to invest in beside gold?
Yes, and as you’ll see ahead this type of investment comes with intrinsic value, carries no credit risk, and cannot be inflated. All of which makes for a great hedge against other asset classes like stocks, political instability, economic collapse, and currency weakness.
Now, this is by no means a comprehensive guide, but rather a brief intro and a few interesting precious metal stats to spark your curiosity and give you a snapshot of the overall industry.
What is a ‘troy ounce’? A troy ounce is used to determine the weight of a precious metal. A very old term, its stuck around since the middle ages. One troy ounce is about 31.1 grams, versus a regular ounce, which is roughly 28.35 grams.
Let’s start with a few interesting key stats:
- Global gold reserves were at 53,000 metric tons in 2020
- Australia and Russia hold the largest reserves of gold
- Peru, Poland, and Australia have the largest reserves of silver
- South Africa harbors the largest reserves of platinum-group metals
- Gold per troy ounce hit a peak of $2,070 in 2020
- At $28.32 Silver recorder it’s best performance in 7 years in 2020
What are precious metals?
They have long been recognized as having economic value, having been coveted by real and fictional characters alike . But what are precious metals and why do they hold a dear place in a savvy investor’s portfolio?
Precious metals are naturally occurring metallic chemical elements. They tend to be less chemically reactive than most other elements. The most commonly though of precious metals are coinage metals like gold and silver.
The other precious metals are called platinum group metals, they consist of:
- and platinum (which is the most widely traded).
As a species, we’ve used them for currency for a long, long time. In the modern world, they’re not so much used as physical currency as they are for hedging against the stock market and other economic and political risks. This means their demand is no longer driven solely by practical use, but also by their role as a ‘store of value’ as well as investments.
How to invest in precious metals?
There are many ways and reasons to invest in metals like platinum, gold, and silver.
Your options include:
Commodity Exchange Traded Funds (ETFs)
A super convenient and liquid way of buying and selling precious metals. You won’t get access to the physical metal however, as you don’t have a claim on the underlying metal in the fund. Meaning you won’t get an actual delivery of the gold, silver, or platinum to your house or anything.
Common Stocks and Mutual Funds
By investing in company shares of precious metal miners. Keep in mind that the shares of these companies are highly sensitive to price movements of the market for precious metals. So unless you follow the mining industry closely and know what you’re observing, it may be best to go with a fund with an experienced manager.
Futures and Options
Do you want to make a big bet on a precious metals? Enter the futures and options markets. The derivatives in these markets offer the greatest profits, as well as losses. They allow you to essentially gamble on the future pricing of a certain commodity.
Are you the type that wants to see and physically touch the metal? Coins and bars are your option of choice. But it’d be wise to have a safe place to store them, such as a safety deposit box. Depending on how much bullion we’re talking about, it may be a pain to try and safely store it. However, some investors would have it any other way than bullion!
A precious metal certificate may be the option for you, if you refuse to store and transport the physical metal yourself. They offer all the benefit of physical ownership without the hassle. Though bullion investors will tell you, if doomsday hits, all you have is a piece of paper and you shouldn’t expect anyone to trade with you in such a time.
So, are precious metals a good investment for you? As mentioned, they offer a unique hedge against other asset classes, political risk, economic risk, national currency instability, etc. But every investment type comes with its own set of risks. One of the risks of precious metals investing is if you buy them when times are good, which typically equates to there being more sellers than buyers. Naturally, this will cause their price to drop. Otherwise, they offer a healthy degree of security.
Which companies produce the most precious metals?
1. The Newmont mining company was the world’s largest gold producer in 2020
(Source: Statista I)
With total production of 5.91 million ounces of gold, this U.S.-Canadian mining giant takes the crown for the largest gold producer. And this is despite the fact that in 2020 the production dropped 4% year-over-year from 2019 due to the pandemic and other factors.
2. Mexican mining giant Fresnillo was 2020’s largest silver producer
(Source: Statista II)
With annual production reaching over 53 million ounces of silver, the Mexcian mining company Fresnillo produced the most silver in 2020. Followed by the Polish company KGHM Polska Miedz, whose annual production was roughly 44 million ounces. Fresnillo’s production peaked in 2018 at 61.8 million ounces and in 2019 they did 54.6 million ounces, which means 2020 saw a -2.74% drop.
3. The largest platinum producer for 2019 was Anglo American Platinum
(Source: Statista III)
With 2019’s total annual production volume of 2.05 million ounces, Anglo American Platinum was a sitting pretty lonely at the number one platinum producer spot. With the second place Impala Platinum Holdings Ltd. producing around 1.31 million ounces of platinum in 2019.
However we’ll see what the 2020 numbers show, as Impala Platinum accounted for 30 percent of world’s platinum production.
Which countries have the biggest precious metal reserves?
4. Global gold reserves were at 53,000 metric tons in 2020
(Source: Statista IV)
Down -7.5% from a peak of 57,000 metric tons in 2016, global gold reserves sat at 53,000 metric tons at the end of 2020. Overall the total mine reserves have been relatively stable for the decade 2010-2020.
5. Australia and Russia hold the largest reserves of gold
(Source: Statista V)
The United States was estimated to have around 3,000 metric tons of gold reserves in mines as of 2020. But the largest gold reserved are sitting in Australia and Russia, who harbor 10,000 and 7,500 metric tons, respectively. As far the distribution of global gold production, however, China holds the top spot with 13% of the global mine production of gold, with Australia at number 2 with 10%.
6. Global silver reserves were at 500,000 metric tons in 2020
(Source: Statista VI)
The global reserves have held steady at or above 500 metric tones throughout the past decade. That’s a lot of forks and spoons! This precious metal is typically used to make coins, jewelry, ornaments, and silverware. But more in line with our technologically advanced world, did you know that silver has the highest electrical and thermal conductivity of any metal?
7. Peru, Poland, and Australia have the largest reserves of silver
(Source: Statista VII)
Only 20% of silver is attained through primary silver production, the rest is actually collected as a by-product of mining for a variety of other metals, such as lead, zinc, copper and gold. Globally the leading silver producers are Mexico, China, and Peru. But when it comes to the countries with the largest reserves of oil, Peru, Poland and Australia sit at the top with 120, 100, and 90 thousand metric tons, respectively.
8. Global platinum reserves were at 69,000 metric tons in 2020
(Source: Statista VIII)
These reserves are bundled under an umbrella called platinum-group metals, and it includes ruthenium, palladium, iridium, osmium, rhodium, and platinum. Their global reserves have stayed pretty steady between 66,000 and 69,000 for the past 10 years.
9. South Africa harbors the largest reserves of platinum-group metals
(Source: Statista IX)
It towers over the other countries like a giant cloud when it comes to platinum-group metal reserves, harboring almost all (93%) of the worldwide reserves. Deep inside the Earth’s crust under South Africa is about 63,000 metric tons of platinum, the symbol of prestige. The second largest reserves of this rare element are in Russia, which harbors a mere 3,900 metric tons of it, relatively speaking.
How have precious metal prices held up in the past decades?
10. Gold per troy ounce hit a peak of $2,070 in 2020
(Source: Money Metals – Gold)
The average price of gold has risen steadily and significantly over the past 20 years. For example, in 2001 gold was at an annual average price of $279 per troy ounce, and in August of 2020 reached a peak of $2,070. Along with the price per ounce, the price to mine this precious metal rose too. In 2005 the price to mine gold was $280 per troy ounce, rising to $566 by 2010, and as of 2019 it costs a reported $775 dollars per ounce to mine.
11. At $28.32 Silver recorder it’s best performance in 7 years in 2020
In August of 2020 spot silver shot up to $28.32 an ounce. And though the price of silver would retreat a bit after that, it still managed to finish the year with a 47% gain, more than double that of gold, which gained 22% the same year.
But in January of 2021, spurred by the Reddit WallStreetBets community, silver even touched the $31 mark very briefly, before falling back down and settling in the $26-$28 range well into Q3 2021. Also, according to the Silver Institute global demand for silver is expected to outpace supply by 7%, they’re expecting silver price to rise an impressive 33% in 2021.
12. Average platinum price jumped 31.5% from 2020 to 2021
As of June 2021, platinum’s average price rose to $1,175 dollars per troy ounce. This is a $282 increase compared to the 2020 annual average. In March of 2020 platinum bottomed out at around $622 per troy ounce, the lowest it’s been in over 15 years. Though it has since more than recovered, hitting a high of $1,293 in February of 2021.
13. Palladium continues to rise, hitting a peak of $2,994 in 2021
(Source: Money Metals – Palladium)
Next time you hear someone mention a rise in the theft of catalytic converters, think of palladium. This highly valuable precious metal helps car exhausts turn turn toxic pollutants into less-harmful carbon dioxide and water vapor, thus 85% of palladium produced ends up in catalytic converters in our cars.
Palladium’s price held relatively steady under $1,000 for almost a decade, only breaching that mark in 2018. But since 2018, the price has sky rocketed to a near $3,000 per troy ounce. Which explains why there has been an increase in stealing catalytic converters from cars.
Interesting precious metal industry trends and statistics
14. India and China have the highest demand for gold jewelry
(Source: Schiff Gold)
India and China continue to be the leaders in global gold consumption into 2021. In China the year-on-year gold consumption flew past 93% in the first half of 2021, as demand recoiled to pre-pandemic levels. And in India gold imports reached their highest level in a decade, with gold imports coming in at 164 tons in March of 2021.
15. The global precious metals market size is expected to grow between 2020-2027
(Source: Grand View Research)
The global market for precious metals was valued at $182.1 billion dollars in 2019. This number is expected to grow at a compounded annual growth rate of 9% from 2020 to 2027, in terms of revenue. With fine jewelry use-cases driving the demand and subsequent industry growth. Particularly gold jewelry which is a key part of marriages in China and India, two of the worlds gold consumption leaders as well as global population leaders.
16. A rise in the automotive industry is predicted to propel the growth of multiple precious metal industries
(Source: Expert Market Research)
As emerging economies increase their demands for automobiles, so too will the demand for certain precious metals increase. Platinum and silver will rise, but palladium probably the most since it’s primary use-case comes from the automobile industry to begin with. In addition to palladium, rhodium’s use-case also comes from the auto industry and it too is expected to experience a growth in demand as Europe, China, India, and other increase their vehicle sales.
17. The COVID-19 pandemic severely impacted production of precious metals
(Source: GM Insights)
The pandemic disrupted supply chains and halted operations of numerous mining companies. COVID-19 also led to a shortage/unavailability of workers and inventory shortages. As an example, silver jewelry fabrication was at 201.3 million ounces in 2019 and dropped sharply to 148.6 million ounces in 2020. On the flip side, investments in precious metals soared as the market uncertainty and volatility made investors seek refuge in more reliable investment vehicles.
Note on the numbers used in the article: In an effort to paint a fuller picture, the figures in this article were aggregated from numerous credible sources, who reported the results of their surveys at various points in time.
Investing in precious metals is a smart way to protect yourself from an economic downturn or more serious events like a government takeover, currency collapse, and a number of other doomsday scenarios. Our ancestors have been using them to trade with one another for thousands of years, and though our world is becoming more digitized by the day, some things always stay precious.
Preparing for the worst is a wise move, and though we like to think the future is bright, it doesn’t hurt to have a worst case scenario fund, just in case our optimism gets the better of us!
Wikipedia | Statista I | Statista II | Statista III | Statista IV | Statista V | Statista VI | Statista VII | Statista VIII | Statista IX | Money Metals – Gold | Mining.com | MacroTrends | Money Metals – Palladium | SchiffGold.com | Grand View Research | Expert Market Research | GM Insights