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Invest in precious metals and precious metals mining
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Key takeaways:
- Possesses both industrial and monetary properties
- Are irreplaceable in the manufacturing of technology
- Diversifies risk 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.
Invest in precious metals via AuAg
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. With their low correlation with stocks and interest rates, precious metal funds can improve any investment portfolio. AuAg offers funds consisting of gold mining companies or silver mining companies, as well as a combination of physical precious metals and companies that manufacture products in green technology.
AuAg Gold Mining
AuAg Gold Mining invests in 25 gold mining companies. 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
AuAg Silver Bullet invests in 25-30 focused silver mining companies with high volatility and high potential for return, earning it the epithet "Europe's riskiest fund”. According to the fund's overall strategy, at least 90 percent is invested in transferable securities and fund units whose value development is assessed to be influenced by the market trends for gold and silver.
AuAg Precious Green
AuAg Precious Green invests 60 % in green technology companies and 40 % in physical precious metals with a focus on gold. 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.
What are precious metals?
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.
The precious metals are:
- Gold
- Silver
- Palladium
- Iridium
- Rhodium
- Ruthenium
How are precious metals used?
Green technology
Silver is a critical precious metal used in manufacturing solar panels and electric cars ー technologies that plays an important role in the green transition. According to Forbes, 141 billion was spent globally on solar energy technology development in 2019.
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.
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.
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 of 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
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.
Jewellery manufacturing
In 2021, two-thirds of all available gold was used in the jewellery industry, which has been the case since 2013. In 2021, the jewellery industry was the third largest sector in terms of the usage of available silver. Platinum is also often used for jewellery.
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 stabilise the countries' currencies.
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. 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 are tangible assets with intrinsic value. Tangible assets always have value, a difference from intangible assets such as securities.
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 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. Here you can find live charts of the price of gold and silver.
High demand
Various precious metals have several areas of use and are thus in demand by several industries. Gold is in demand by the jewellery 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 jewellery 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.
Performs in times of uncertainty
While precious metals such as gold tend to perform well during uncertain times, other precious metals tend to follow more closely with market fluctuations. 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.
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.
How to invest in precious metals?
- Physical precious metals: You can buy the physical metals, such as gold, silver, platinum, or palladium, and store them at home or in another safe place.
- ETCs (Exchange Traded Commodities): By purchasing an ETC, you own physical precious metals and pay a fee to avoid managing the storage yourself.
- Derivatives: Investment products that track the price of precious metals, but where you face counterparty risk against the issuer of the product.
- Shares: The share price of mining companies that extract precious metals is closely tied to the spot prices of those metals. Due to the additional company-specific risk, mining stocks often fluctuate more than the price of the underlying metal.
- Funds: Investing in a fund means you pay a fee for an expert (fund manager) to choose underlying assets that offer exposure to precious metals.
How much should you invest in precious metals?
Precious metals are always a good consideration when 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.
What does the future look like for precious metals?
The future of platinum
The price of platinum is expected to rise due to increasing demand from the automotive industry, medical technology, and the jewellery industry, despite potential challenges from the rise of electric vehicles, which reduce the need for traditional catalysers. With stricter emission standards in Europe and China, as well as global supply disruptions, including a semiconductor shortage, the need for platinum remains strong. Meanwhile, future growth in hydrogen technology, where platinum is used in fuel cells and the production of eco-friendly hydrogen, could further strengthen the market. However, the market is influenced by geographic shifts in demand, where decreased demand for diesel cars in Europe could potentially be offset by increased needs from the truck market in the USA and China.
The future of silver
Silver is one of the most used commodities in the world in terms of the number of uses. 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 is likely to continue as a central asset in global economies, with steady demand from investors and the technology sector. The price of gold is expected to increase over the next decade due to factors including inflation, as central banks around the world expand the money supply and its relationship to the US dollar, as well as uncertainty and geopolitical conflicts.
Why invest in precious metals funds with AuAg?
- All AuAg funds are classified as Article 8 according to sustainability criteria.
- AuAg strategically utilises data from Sustainalytics, Sanctify and Datia, to enable a well-founded analysis of companies' sustainability efforts.
- AuAg's funds fit well into a portfolio of traditional assets as they have a low correlation with stocks in particular.
- AuAg Funds offer both daily traded and exchange-traded funds. Common to these is that they focus on companies that extract gold and other precious metals.
Yes. Precious metals have unique properties that make them irreplaceable in various areas. Silver is an important component in many products that play a decisive part in the green transition, such as solar panels and electric cars. Moreover, silver is an essential metal for expanding the 5G network and for radio-frequency identification, RFID.
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