Actual: Precious Metals
9 April 2020

The agency RBK recently published material, the main points of which are laid out in this article. Precious metals include: gold, platinum, silver, palladium, as well as osmium, rhodium, iridium, and ruthenium. These metals possess a number of distinctive properties, namely: they are not subject to corrosion, they do not rust, and they have an attractive appearance. It should be said that they are considered precious also because they are contained in a small amount in the earth’s crust and extracting them is very difficult. 

If we talk about creating jewelry, gold has the most value for manufacturing it. Gold is used as an investment metal, as well as raw material for manufacturing. The shelf life of gold is also impressive – gold bullion can go decades without becoming deformed. 

The precious metals palladium and platinum are applied primarily as autocatalysts in the automobile industry. With their help, there is a decrease in the level of emissions of toxic substances into the atmosphere. Platinum is also often used in the jewelry industry.  

A distinctive property of silver is the ability to attribute it to both precious metals and industrial metals. Silver is sold as a precious metal in a variety of forms: bars, coins, through metal accounts, and ETF. In industry, silver is used in electronics, medicine, chemistry, military production, and for the manufacturing of mirrors and solar panels. 

Among the active participants of the precious metals market it is worth highlighting: gold-mining companies (supplying the bulk of the gold to the market), industrial consumers (jewelers, industrial enterprises, professional dealers and intermediaries), banks and specialized companies (buying gold and reselling it to other banks). Investors include, for example, pension finds and private investors, Central banks (forming the state’s gold reserves and managing market prices). 

Among the most significant exchanges on which precious metals are traded are: Comex and Nymex in New York, Simex in Singapore, Tocom in Tokyo, and the Luxembourg Gold Exchange. The London Bullion Market Association plays an important role. This organization manages the precious metals market, guarantees its stability, sets international standards, and much more. 

What forms the prices of precious metals: 

  • The situation on the financial markets. Historically, gold has been a protective mechanism - gold is bought during the instability in the markets, in the economy and with rising inflation. When growth is observed in the financial markets, gold and silver are less in demand.
  • Interest rates. Precious metals do not bring interest income and are useful to investors only in the context of rising prices. Accordingly, the demand for them begins to fall. 
  • Reserves. A distinctive feature of the gold market is the active participation of central banks in tenders, where banks acquire metal to form reserves. The actions of central banks can have a decisive influence on the gold market.
  • The state of the economy. Since silver, platinum and palladium are often used in industry, their prices are highly dependent on the situation in the economy. Slowdown in the economy leads to a drop in demand for precious metals from companies and thereby leads to lower prices for precious metals. Metals are becoming cheaper as market conditions change.
  • The pricing of silver and gold is closely interlinked. In most cases, silver prices repeat the dynamics of gold prices. That is, silver is a more volatile asset, and investments in it are associated with increased risk.

Recently, platinum has begun to yield much lower than palladium in price dynamics. In 2019, palladium prices increased by 60%. The reason is that platinum is used in catalysts for diesel cars, and palladium - with gasoline. After the diesel scandal with Volkswagen that erupted in the fall of 2015, demand for diesel vehicles fell sharply, and with it –platinum.

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