Why invest in precious metals?
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Precious metals:
- possesses both industrial and monetary properties
- are irreplaceable in the manufacturing of any technology
- are assets that increase the risk-adjusted return in a portfolio
- has historically protected against inflation over a long time horizon
- are finite resources that are expected to become increasingly rare in the future
Precious metals refer to metals that have low reactivity with other substances, i.e., they show great resistance to chemical influence from the surrounding environment. Precious metals generally have a higher melting point than other metals.
Investing in precious metals is a good way to diversify your portfolio and has historically proven to provide good protection against inflation and market uncertainty.
Precious metals count as:
- gold
- silver
- platinum
- palladium
- iridium
- rhodium
- ruthenium.
Why invest in precious metals?
Precious metals are considered some of the world's most valuable commodities and are used as industrial raw materials or as investments. For example, gold reserves are used by central banks in many countries as collateral since investing in gold reserves is considered an efficient way to help secure and stabilize the countries' currencies.
If you want to buy precious metals without having to handle a large number of gold bars or jewelry, funds that invest in companies that extract precious metals are an alternative. Such funds are AuAg Silver Bullet, AuAg Gold Mining ETF, and AuAg Precious Green.
Seven reasons to invest in precious metals
Historical returns are no guarantee of future returns. However, AuAg (along with many others) believe that precious metals have a bright future and notice several reasons to invest in precious metals.
Protection against inflation
Precious metals, primarily gold, have historically proven to provide good protection against inflation over long periods because the price of gold tends to rise when inflation rises. Actually, it is not the price of gold that goes up, but the value of all fiat currencies that go down when inflation increases. The price of gold is reflected by the amount of debt and credit in the financial system. Investing in precious metals such as gold can preserve your purchasing power and thus compensate for the decline in the value of other assets.
Real value
Precious metals have an intrinsic value, unlike bonds which have a nominal value and are thus not set in relation to anything else or take inflation into account.
Portfolio protection
Precious metals have a low long-term correlation with assets such as stocks and interest rates; this has historically helped portfolios containing precious metals (such as gold and silver) generate returns even during turbulent and uncertain times in the market. The price of gold decreased between 2012-2015 and has since risen steadily ー during the pandemic, the price of gold reached new heights as investors began to invest in gold. The price increase was partly due to the new debt and credit that was created to pay for the crisis, but also because it is considered a safe choice to invest in precious metals in times of concern.
High demand
Various precious metals have several areas of use and are thus in demand by several industries. Gold is in demand by the jewelry industry, investors, and central banks, and to some extent, also in the industry. Silver, palladium, and platinum are also in demand by both the industry and the jewelry industry. The high demand from several industries means that precious metals will often be in demand both during periods of economic growth and during recessions.
Good times
While precious metals such as gold tend to perform well during uncertain times, the opposite is true for the precious metals platinum, palladium, and silver. Platinum, palladium, and silver are more widely used in the industry, and the price of these precious metals tends to fall during recessions due to fewer goods being produced. Therefore, investing in various precious metals can be a good idea.
Diversification
Precious metals help diversify the portfolio because they, primarily gold, have a low correlation with the broad stock market. Moreover, they contribute to a higher risk-adjusted return in a portfolio that mainly consists of shares and interests.
Finite resource
Investing in precious metals is considered a good investment because precious metals are a finite resource and the supply of the Earth's limited resources is constantly decreasing. When the supply decreases, the demand increases, which causes the value to increase over time.
What are precious metals used for?
The wide, and continuously increasing, area of applications is one of the main reasons to invest in precious metals. Below you can read more about how precious metals are used in various industries.
Green technology
Silver is a critical precious metal used in manufacturing solar panels and electric cars ー technology that plays an important role in the green transition. According to Forbes, 141 billion was spent globally on solar energy technology development in 2019.
Silver also has antibacterial properties, which makes it important for purifying water. Platinum and palladium are the active substances in internal combustion engines' catalysts that clean our air. The platinum family metals are also an important component in the production of hydrogen and fuel cells. It will be possible to develop a new generation of emission-free vehicles with hydrogen fuel cells.
The aerospace industry
Silver is an irreplaceable component in jet engines because the metal increases the solidity and strength, making the engines work optimally in high temperatures such as 1,500 degrees. Silver also acts as a lubricant to provide additional safety if, for example, an oil pump were to stop working. Gold is used in space technology, such as the gold-plated mirrors on NASA's Webb-telescope.
Medical technology industry
Platinum-based metal complexes can be used as a tool in modern medicine to treat various forms of cancer. One example is targeted cancer treatment where cytotoxic nanoparticles of gold, platinum, and iron are used to destroy cancer cells without harming healthy cells. More research is required, but there is a potential that treatment with precious metals could revolutionize chemotherapy, providing a gentler alternative to traditional chemotherapy, which today can cause serious side effects. Gold is also used in the manufacturing of radiation protection.
The automotive industry
Metals in the platinum family, such as platinum and palladium, are used to manufacture catalytic converters for petrol and diesel-powered cars.
Silver is an important part for producing electric cars as over 50 car parts in a modern electric car require silver. Silver has the best conductivity of electricity and heat, and is used, for example, in buttons where you want quick responsiveness, and also in the windshield to quickly heat up and melt away frost. Gold is also used in car manufacturing, for example for circuit boards and connectors.
Communication
Precious metals bring people together. Both silver and gold are used in communication technology, such as mobile phones. Silver is also a necessary part of the expansion of the 5G network, where gold is equally necessary for manufacturing computers.
Jewelry manufacturing
In 2021, two-thirds of all available gold was used in the jewelry industry, which has been the case since 2013. In 2021, the jewelry industry was the third largest sector in terms of the usage of available silver. Platinum is also often used for jewelry.
How to invest in precious metals?
As a private individual, you can invest in precious metals by, for example, buying bars of gold, silver, or platinum. The disadvantage of buying precious metals in physical form is that the investment requires high-security storage and that selling the bars may be a cumbersome process compared to the alternatives. An alternative to buying precious metal bullions is to invest in funds consisting of companies that mine precious metals, or funds that invest in physical gold, silver, or platinum.
Three ways to invest in precious metals via AuAg
AuAg offers funds focusing of gold mining companies or silver mining companies, alternatively a combination of physical precious metals and companies that manufacture products in green technology. You can buy precious metals by investing in our funds.
Precious metals have historically been a good investment during periods of high monetary inflation, but they also play a crucial role in producing future technologies. We believe that precious metal funds have a great future ahead of them. Therefore AuAg gives both individual and professional investors the opportunity to invest in precious metals through our funds. The funds differ based on industry, risk, and return potential to offer alternatives regardless of your portfolio strategy.
AuAg Gold Mining ETF
ー an exchange-traded fund that invests in 25 gold mining companies. Investing in gold mining companies provides a leverage effect against the gold price and, thus, a greater upside in an upward market for gold.
The mining companies in the portfolio are equally weighted at 4 % to provide greater allocation towards medium-sized mining companies to provide greater potential for returns. The fund is rebalanced every quarter to ensure that only the 25 best companies concerning sustainability (ESG risk rating) are included in the fund.
AuAg Silver Bullet
ー a daily-traded equity fund containing 25-30 silver mining companies. The fund also goes by the epithet "Europe's riskiest fund ー with high volatility comes great potential for returns.” According to the fund's overall strategy, at least 90 percent is invested in transferable securities and fund units whose value development is judged to be affected by the market development for gold and silver.
AuAg Precious Green
ー a fund that invests 60 % in green technology companies and 40 % in physical precious metals with a focus on gold. The mixed fund can be compared to an updated version of the classic 60/40 portfolio. Instead of broad exposure to equities, the fund focuses on investments in green technology, giving investors exposure to the green transition. The fund invests, among other things, in companies that produce environmentally friendly energy, products for energy storage, products that reduce emissions, and mining companies that extract essential elements for the production of green technology.
The fund's remaining 40 % is allocated to physical precious metals, mainly gold – but also silver, platinum, and palladium – instead of the usual bonds that are commonplace in classic 60/40 portfolios. Swapping bonds for physical precious metals proved effective portfolio protection in the spring of 2022 when both stocks and bonds went down ー a very unusual event.
Where can you buy funds from AuAg?
AuAg’s daily-traded funds (AuAg Silver Bullet and AuAg Precious Green) are available in Sweden, Norway, Denmark, Finland, and Germany. You can invest in precious metals by buying these funds via fund platforms such as Avanza, Nordnet, SAVR and Fondo.
Our ETF (AuAg Gold Mining) is available in the entirety of Europe and is listed on the following exchange platforms: Borsa Italiana, Deutsche Boerse Xetra, Euronext Paris, London Stock Exchange, and SIX Swiss Exchange.
Visit the page of a fund or ETF to see a full list of the platforms where you can buy it.
When to buy precious metals?
Precious metals are always a good consideration in creating a well-diversified investment portfolio. According to Oxford Economics, the optimal share of gold in a portfolio is 5 % in a 50-year market scenario with 2.25 % annual growth and 2 % inflation. This weighting should be higher when, for example, inflation is higher.
Your planned investment horizon and risk profile should determine the share of precious metals in your portfolio. If you are long-term, the time to buy precious metals is less important, as the price has historically increased over longer periods. The price of gold has risen an average of 9.1 % per year since 2000.
A well-established strategy to ensure a good purchase price is to invest in precious metals as part of your monthly savings. This strategy removes the risk of buying at price peaks.
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Is it a safe investment?
The fund AuAg Silver Bullet goes by the epithet "Europe's riskiest fund" because silver as a raw material and silver mining companies are relatively volatile. Volatility in a rising market provides an opportunity for high returns. The fund has a high risk class (7 out of 7).
Gold is considered a safe haven in uncertain times, for example, when there is unrest in the financial system or when there is a risk of war. Gold, like all assets, will crash because it is an asset with high liquidity. However, the price tends to recover and go up faster than other assets after a crash/major decline. During booms, the price of gold tends to be weaker, but with its low correlation to other assets, it remains an important part of a well-diversified portfolio. Even gold mining companies have high volatility, which makes it important to spread the risk by investing in many different mining companies. Therefore, the AuAg Gold Mining ETF invests in 25 different mining companies and is a high-risk fund (risk class 6 out of 7).
The fund AuAg Precious Green invests both in companies within sustainable future technology and in physical precious metals. The fund is classified by fund platforms as a medium risk fund (risk class 5 out of 7).
Buying precious metals in physical form or as funds is always associated with risk ー your strategy and risk tolerance determine how much of your capital you should invest.
Are precious metals an environmentally friendly investment?
The mining industry has been counted as one of the dirtiest industries with a large environmental impact. However, today many of the world's mining companies are working hard to reach the UN's 17 goals for sustainable development. Since precious metals are critical to carry out the green transition and building products such as batteries and solar cells, AuAg focuses on investing in the most sustainable mining companies.
All our funds are classified as Article 8 in terms of sustainability. There, the promotion of change is the most important criterion for sustainability. Therefore, AuAg conducts an active dialogue with the companies we invest in in order to be able to follow their ongoing sustainability work and ensure that the goals are achieved.
Examples of how mining companies work with sustainable development:
- connects to the power grid
- installs “microgrids” powered by the sun
- uses fuel cell cars
- helps local communities
- uses a modernized process to restore the area around the mine.
Strategic collaboration with the leading supplier of ESG data
To ensure that the companies in the funds' portfolios work according to a clear sustainability agenda, we follow a well-defined investment process that includes a strategic collaboration with Sustainalytics. Sustainalytics is a world-leading provider of sustainability data (ESG data); based on their data we can make a well-founded analysis of the companies we invest in.
Our fund AuAg Gold Mining ETF is a good example and includes the 25 gold mining companies with the best ESG rating. The fund is rebalanced every quarter to ensure that the companies are continuously putting in the effort to become more sustainable – companies who lag behind in their sustainability work are excluded.
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What does the future look like for precious metals?
There are many indications that those who choose to invest in precious metals will see themselves rewarded in the long run, both because of the increasing monetary inflation in our financial system, and because industrial demands for precious metals will increase. Below is an illustration of 90 elements, of which 31 are necessary to produce a normal smartphone. The illustration also shows an estimate of the future supply of the various elements.
Copper, lithium, and nickel are metals that will become increasingly rare and thus even more valuable. Investing in base metals can therefore prove to be a smart strategy.
The future of platinum
The platinum price is being held up by a recovery in the jewelry industry, industrial demand, higher emissions requirements for vehicles, and supply disruptions. When emissions requirements tighten in Europe and China, more platinum will be required to manufacture enough vehicle catalysts. In addition, the global shortage of semiconductor chips in which platinum is an important component has led to some manufacturers being forced to give up some features in some models or temporarily close some factories.
Experts believe that the biggest threat to the platinum price is the takeover of battery-electric vehicles which will reduce the demand for catalytic converters for cars with internal combustion engines.
On the other hand, if the interest and demand for hydrogen cars will increase, the demand for platinum will rise as it is an important material in fuel cells and in the production of environmentally friendly hydrogen.
According to precious metals trader Gold Alliance, the price of platinum is forecast to rise in the near future as the supply of platinum is currently low, and demand from the automotive and medical technology industries is expected to increase. Although demand for diesel cars is believed to be declining in Europe, increased demand for trucks in the US and China is expected to offset the decline.
The future of silver
Silver is the most used commodity in the world in terms of the number of uses (after oil). It is an important component in almost all electronic equipment we use everyday and is also an irreplaceable part of future technology. Without silver, it will be close to impossible to expand the 5G network to implement automatic and electrified transport.
The Silver Institute predicts that the use of silver will increase by 10 percent by 2025 due to its importance in future technologies. Silver is also believed to become increasingly rarer and more valuable due to the limited supply, which can make a silver investment a profitable business. While the demand for silver is predicted to increase, depending on whether future technological solutions, such as solar panels, will become more efficient and able to replace silver with other alternatives or use less silver, it may instead decrease.
The future of gold
Gold has always been a popular metal, especially for jewelry and as an investment. The value of gold is always determined by the market and the price is less sensitive to supply and demand because a new mine's supply is outweighed by the amount of gold already on the market. In short, you can say that when large collectors sell large amounts of gold, the price drops, and when large collectors buy, the supply is quickly bought up, which drives up the price.
Gold prices were at record highs during the covid-19 pandemic in 2020-2021 ($1,795 per troy ounce, average price) and when Russia invaded Ukraine in spring 2022, but have since fallen to about $1,750 per troy ounce. During events such as war, the price of gold tends to rise but will eventually come back down. In the long term, the creation of debt and credit in the financial system controls the price of gold. The balance sheets of the world's central banks have expanded significantly since the financial crisis of 2008, which also caused the price of gold to rise. Investing in precious metals such as gold is considered a good investment over a longer period.
Graph from Statista of the gold price
*Always research before buying precious metals, and never invest more than you can afford to lose.
Precious metals include gold, silver, and metals in the platinum family, such as platinum, palladium, and iridium. Buying precious metals in physical form can be cumbersome, so a good alternative is to invest in funds that invest in mining companies that mine the precious metals.
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