Precious metal
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A precious metal is a rare metallic element of high, durable economic value.
Chemically, the precious metals are less reactive than most elements, have high luster, and have higher melting points than other metals. Economically, the precious metals have been historically important as currency, and remain important as investment commodities.
The best-known precious metals are gold and silver. While both have industrial uses, they are better known for their uses in art, jewelry, and coinage. Other precious metals include the Platinum group metals: ruthenium, rhodium, palladium, osmium, iridium, and platinum, of which platinum is the most widely traded. Plutonium and uranium could also be considered precious metals.
The demand for precious metals is driven not only by their practical use, but also by their value as investments. Palladium is, as of February 2004, valued at a little over half the price of gold, and platinum at more than twice that of gold. Silver is substantially less expensive than these metals, presently at 1/57 the price of gold, but is often traditionally considered a precious metal for its role in coinage and jewelry.
Bullion
Precious metals in bulk form are known as bullion, and are traded on commodity markets. Bullion metals may be cast into ingots, or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money.
Many nations mint bullion coins, of which the most famous is probably the gold South African Krugerrand. Although nominally issued as legal tender, these coins' face value as currency is far below that of their value as bullion. For instance, the United States mints a gold coin (the Gold Eagle) at a face value of $50 containing 1 troy ounce (31.1035 g) of gold — as of April 2005, this coin is worth about $433 as bullion. Bullion coins' minting by national governments gives them some numismatic value in addition to their bullion value, as well as certifying their purity. The level of purity varies from country to country, with some bullion coins of as pure as .9999 available (the Canadian Maple Leaf coin meets this standard.) Note that a 100% pure bullion coin is not possible.
One of the largest bullion coins in the world is a 10,000 dollar coin minted in Australia which consists of a full kilogram of 0.999 pure gold, however China has produced coins in very limited quantities (less than 20 pieces minted) that exceed 260 troy ounces (8 kg) of gold.
Tangible investments in bullion are often seen as a hedge against both inflation and economic downturn. Gold in particular has retained its value well over long periods of time. Meanwhile, silver bullion coins have become popular with coin collectors due to their relative affordability, and unlike most gold and platinum issues which are valued based upon the markets, silver issues are more often valued as collectables, far higher than their actual bullion value.
Precious metal status
A given metal is precious if it is rare. If mining or refining processes improve, or new supplies are discovered and exploited, the value of such a metal declines.
An interesting case of a precious metal going common is that of aluminium. Aluminium was, when it was first discovered, extremely difficult to separate from the rocks it was part of and, since the whole of the Earth's aluminium was bound up in the form of compounds, the most difficult metal on earth to get, despite the fact that it is one of the planet's most common.
For a while, aluminium was more valuable than gold; bars of aluminium were exhibited alongside the French crown jewels at the Exposition Universelle (1855). However, the price dropped continually and collapsed altogether when an easy extraction method, the Hall-Heroult process, was discovered in 1886.
The rarity of various metals may again be in for a shift, however. According to USGS statistics, at current production rates all the gold in the earth's crust will theoretically be processed within several decades. Meanwhile, silver is in a structural supply deficit, with 300 million troy ounces (9,000,000 kg) more being consumed each year than is mined--it may currently be more rare than gold.[1] (http://www.silver-investor.com/)