Alternative Investments Explained: Precious Metals


Alternative Investments Explained: from bamboo to precious metals, breaks down the alternative products vying for your cash and assesses which assets are worth taking the risk.

This week, precious metals go under the microscope.

What makes a metal precious? Several things. Firstly, the chemistry: precious metals are less reactive than most elements. Secondly, their appearance: due to their chemical make-up, precious metals tend to glisten more in the light, making them more attractive to both consumers and investors. Thirdly, their proliferation; while the metals all occur naturally, they are rarer than standard metals, which makes them more precious. All of these combine to create the fourth, and most important factor, their financial value.

Go back hundreds of years and precious metals, such as gold, silver and platinum had such high values that they were used as currency, traded in place of coins. Over the years, these naturally occurring metals have become even more valuable – or at least, the perception of their value has increased – to the point where they are never used as currency. Instead, they are hoarded as commodities for industrial or investment purposes.

Gold and silver's colourful properties make them ideal for art and jewellery, sculpted into fashion accessories and luxury items. They are also used as bullion for currency, although the metal's core value makes the coins far more valuable than their denominational worth.

Aluminium used to share the same precious status as gold and silver – not because it was a rarely occurring substance, but because it was difficult to obtain from the Earth and extract from ores. When that issue was solved, aluminium became increasingly common, prompting its value to plummet to that of a normal metal. It is now used to make drink cans and other everyday items.

But gold and silver are precious because of their rarity, which has kept their worth high. Indeed, as a commodity investment, that's what makes precious metals so worthwhile; the long-term perception of their value enables them to resist wider economic trends. Markets may fluctuate, currencies may weaken, but the value of precious metals remains the same.