Tracking the Precious Metal Industry

As mPAMP Bullionost people would already know, investing in precious metals is a very capital intensive, meaning it's expensive. However what most people would like to know is - is it worth it? The simple straightforward answer is YES it is. The reason behind the high prices of gold, silver, platinum and palladium is not only due to the fact that it is scarce, but it is also due to the fact that the industry itself is capital intensive. Constructing mines, exploration, miner's wages, high risk insurance commitments as required by law, production and refining requires huge sums of capital that run into the billions. However, unlike most commodities (rest assured - gold is a commodity), gold prices do not depend on the cost of mining them, and they depend on market influences. When economies are good and capital markets become attractive, in most case scenarios prices of gold are low prompting people to buy gold jewellery for aesthetic purposes on one hand and on the other hand prompting investors to buy gold as a hedge against future inflation.

Nevertheless, investment buying of gold during ‘good economic times' are typically low and ‘docile' to an extent, but when the economies of the world start to fracture, investors usually dump all other forms of investments and head for gold and other precious metals until gold prices soar and hit a resistance (resistance is when prices are so high that investors stop being). In essence, to a large extent gold prices are determined by expected inflation, returns on assets (long run), central bank demand as well as fabricator demand and to a small extent the jewellery industry. With all these variables at play simultaneously predicting the direction that the precious metal industry will head becomes nearly impossible. Nevertheless, one thing that people can be certain about is the fact that in the long run those who own physical gold (regardless if it is in the form of bullions or jewellery) will benefit with those owning bullion benefiting a little more than those who own jewellery due to the excess price that jewellery buyers pay for craftsmanship.

Demand for Gold

Although this segment of the article relates to the precious metal industry, it is more focused on gold as most other precious metals such as silver, platinum and palladium are usually discovered by accident when companies are mining or looking for gold and in most circumstances they are by products of gold. The precious metal industry demand is primarily fixated on gold and most of the gold mined on the planet is actually used for jewellery more than they are for investments. It is also due to this fact that the prices of physical gold is difficult to be manipulated as the buying power of a few blue chip companies with massive financial resources at their disposal are no match for the billions of people poor and rich spending on gold jewellery. 15 % of the global demand for gold is also supplemented via scrap gold (recycled gold) which makes it a huge sub industry within the precious metal industry. The difference between gold and other commodities is the fact that demand for gold is in general stable and does not fluctuate much, however economic upheavals and supply shocks have the potential to drive the prices of precious metals up or off a cliff.

Investing in Gold

The best way to invest in gold is to buy physical gold and the best form of physical gold to invest in is obviously gold bullion. Although buying jewellery is considered by some as a form of investment that is ‘double tiered' as a store of value while simultaneously serving the individuals cosmetic purposes through which jewellery buyers are able to derive satisfaction. However, buying gold in the form of jewellery may take years or even decades before jewellery buyers are able to see ‘margins' on their investments as opposed to bullion buyers who would be able to see returns on their assets within a few years, especially when economies of the world have had a good run as they have over the recent years.

For smaller investors, buying gold in smaller denominations is a viable solution and the best way to go about it is by buying P.A.M.P gold which is available in 1 g bars right up to 1 Kg bars, however it is more advisable to buy P.A.M.P gold in smaller denominations in order to facilitate rapid liquidation when the need arises. Buying gold certificates, ETFs and mining stocks are also viable investments, however for those who are new to the industry should refrain from buying ‘paper gold' or gold related investments as they can be very volatile and bigger market players are still able to manipulate the market successfully washing out the smaller investments with their massive purchasing power. To make a long story short, if you are planning to invest in gold, buy gold bullion as it is the safest and most secure option - period.


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