Mar 24 2020
Precious Metal Markets
Precious metals are rare and naturally occurring elements that generally have a high economic value. It just so happens that many precious metals can be classified as being “noble metals” which means they have outstanding resistance to oxidation, even at very high temperatures, and typically have a high level of lustre. The relative scarcity of these metals and their lustrous appearance have historically led to their use in commerce, but their strong chemical properties also mean that many industrial applications apply to these metals as well.
How are precious metals used?
Historically, precious metals have been used most often in coinage, art, and jewelry creation. The most popular metals for these applications are gold and silver, and these use cases both stemmed from, and conferred upon, the status of investments or stores of value. Platinum also has similar applications, but to a much lesser extent.
What is however common across all precious metals is their use in industry. For gold this is typically manifested by use in consumer electronics due to its superior conductive properties, meaning that a gold iPhone relates both to the color of the phone and the components within. About 10-15% of annual gold demand comes from industrial use. This percentage rises within other precious metals. Silver, for example, despite its significant use in coinage, jewelry, and art owes more than 50% of its demand to industrial and commercial applications. Such applications include batteries, LED chips, photography, solar power, semiconductors, and in water purification. Here are some other precious metals and their associated uses in industrial applications:
- Platinum - Interestingly Platinum is primarily used in automotive applications, the most popular of which is as a catalyst in catalytic converters
- Palladium - Just like Platinum, Palladium is most often used in catalytic converters. However, where Platinum can be typically found in diesel autos, Palladium is used most in vehicles that use unleaded fuel.
- Rhenium - Rhenium is one of the rarest elements in the Earth’s crust and has the third-highest melting point of any element. Because of this high tolerance to heat you’ll find Rhenium used in applications like turbine blades and exhaust nozzles of jet engines.
- Iridium - Discovered in 1803, Iridium has been used for decades in the industrial hardenting for platinum alloys. Additionally, it is often combined with Osmium to form an alloy used in consumer products such as pens or bearings.
- Osmium - Because of its density, Osmium is often used to make phonograph needles, in fountain pen tips, and electrical contacts
Making Precious Metals Ready for Use
Regardless of the final use case of a precious metal, in order for it to be freely traded in commerce it must be standardized into units that allow for accounting and divisibility. This function is highly scalable, but tends to be regionalized due to the weight and high value of the materials. Thus there are a large number of mints or ingot manufacturers that produce bullion, which is defined as precious metals made available in bulk and standardized by both weight and purity. Specifically we will explore the production and life cycle of bullion that is processed by mints.
What is a Mint and How Does it Work?
Mints refer to organisations that produce (or mint) coins and/or print banknotes. One of the key functions of a mint is to produce gold bullion. This process is relatively complex and involves multiple steps, including sourcing the metals, refining to remove impurities, melting them down, recasting the metal, and pressing them in dies to standardize the metal. Once the raw metal has been processed and turned into bullion, the mint will then prepare coins, ingots, or bars for shipment to retailers or individual investors.
The history of mints correlates closely with the history of coins. In the beginning, hammering metal rounds into coins or casting coins were the go-to methods of coin creation, with resulting production topping out in as little as the hundreds or thousands. By the early 20th century, mints were using electrical power to drive rolls. In modern mints, coin dies are manufactured in large numbers and planchets are made into coins by the billions.
With the mass production of currency, the production cost is weighed when minting coins. For example, it costs the United States Mint much less than 25 cents to make a quarter (a 25 cent coin), and the difference in production cost and face value (called seigniorage) helps fund the minting body. Conversely, a U.S. penny ($0.01) cost $0.015 to make in 2016. Mint pricing directly impacts the value of global currency.
There are several mints from around the world that produce precious metals products. Some mints are distinguished by regulations while others are not. For collectors and investors, it’s important to note the difference between sovereign and private mints.
Sovereign mints are sometimes referred to as government mints or national mints. Products produced by these mints are made for legal tender in that country. Often, there is a face value associated with the product and an official legal tender status. Sovereign mints include the United States Mint, Royal Canadian Mint, the Perth Mint, Chinese Mint, and Australian Mint. Sovereign mints produce some of the most popular designs like the American Silver Eagles and Australian Gold Philharmonics.
Private mints are privately owned and do not produce bullion for legal tender. With private mints, they make products with their own branding or designs, purity, and metal content. There are no legal requirements to produce a given amount of precious metals. Examples of popular private mints are Engelhard, Johnson Matthey, and PAMP Suisse.
Today, two of the largest, most well-known mints in the world are the Perth Mint and the Royal Mint mentioned above, both in Australia. Both mints perform a variety of functions, including creating blanks (which can become coins once dyed).
Transacting in Precious Metals
For those interested in investing in precious metals, they usually go with one of two choices: they can choose to buy physical gold, silver, etc., or they can use futures contracts.
A precious metals futures contract is a legally binding agreement for delivery of gold or silver at an agreed-upon price in the future. A futures exchange standardizes the contracts as to the quantity, quality, time, and place of delivery. Only the price is variable. These contracts are a good way to hedge price risk on an expected purchase or sale of the physical metal. Futures also provide speculators with an opportunity to participate in the markets without any physical backing. Trading futures contracts offers more financial leverage, flexibility, and financial integrity than trading the commodities themselves because they trade at centralized exchanges.
Gold futures reflect the current market price of gold without added premiums. Futures are very liquid and allow for easy market entry and exit. The price of gold futures (and gold ETFs) follow the market price of gold.
Investors can buy precious metal bullion in the form of coins, rounds, and bars. So long as you have a safe method of storage, this provides you with a tangible asset for wealth protection. This is a favorable option for people who wish to incrementally accumulate wealth over the years.
Precious metals are a major industry all over the world. With applications in fine jewelry, automotive production, electronics and medicine, there are few areas of our day-to-day lives that are not touched by the demand for silver, gold, or platinum. Different countries rely on different aspects of precious metals production for profit. For example, Switzerland is the top gold exporter in the world, but does little mining of its own rich gold deposits. China mines more gold than any other country, but Hong Kong is the major exporter of that gold. Following international precious metals markets can assist you in making smart investments in gold, silver, and platinum.
Keep in mind when looking at precious metals spot prices, international markets take currency exchange rates into account. The price of precious metals per gram is the same across all markets. No matter how small or large your purchase, the spot price of precious metals is the same on all international markets. Therefore, no market is preferred when buying large quantities of precious metals.
This is where mint prices tie in. Mint and bullion pricing are both very closely correlated, and knowing the pricing patterns of these can have an impact on your trading strategy, especially if you’re interested in hard-asset investing. The mint price represents the physical precious metal price most clearly, as it does not include any broker premium, no collection premium, or any other added costs that may be included in other market prices found for precious metals. Using the mint price as a reference point allows investors to see the lowest price for physical precious metals.
Getting Precious Metal Pricing Data
cmdty by Barchart is currently providing data to physical bullion prices. With market data on global mint prices and industrial bullion, alongside our global coverage of commodity futures, we make it simple for clients to get all the metals data they need in one place. The market data that we report has no collection value added, and represents the present precious metal price as normalized by the per troy ounce. Quotes are generated in the currency that the mint uses in order to maintain as precise of a quote as possible. Check out our precious metals and industrial bullion prices today.