Why the Volatility of Precious Metals Should be Viewed as a Good Thing

We have discussed in the past how various precious metals correspond to stock sectors and specific stocks, but we haven’t specifically addressed how the volatility in precious metals can be viewed as a good thing.

Most people are under the impression that volatility is bad, and in many cases, that’s correct, but it also provides tremendous buying opportunities that you may not have been privy to if you only invest in stable low volatility investments.

As an example, I made my first Bitcoin purchase during the last crash when Bitcoin was sub $16,000. There were a number of issues in the cryptocurrency market that drove prices down. In fact, at the time, many cryptocurrencies were 70% – 80% below their recent highs. At the time of this writing, Bitcoin is $37,200. It’s not that I have any special investment acumen – I simply took advantage of a crash in the market to purchase a speculative investment that I thought had upside potential at the time of my purchase.

Granted, by the time you read this article, Bitcoin may be down to $5,000 and it will look like a colossal failure, but I’m willing to take that chance, as I didn’t invest too much money and know that it’s going to be a bumpy ride over the next few years.

Gold, silver, platinum and palladium should be viewed in the same light. In other words, when these metals are more volatile than normal due to geopolitical, economic, fiscal or currency issues, they should be viewed as buying or selling opportunities as opposed to a reason to panic.

The Volatility of Palladium

Case in point – one of our regular customers reached out to us recently to purchase all the palladium coins and bullion that we had in stock. At the time he contacted us, the price of palladium was approximately $1,000. He follows the precious metals market closely and knows that the price of palladium hit an all-time high of $3,440 at the start of the Russia-Ukraine conflict.

Considering that Russia is one of the world’s leading producers and exporters of palladium, the thought was that exports would dwindle – especially considering the sanctions the West has placed on Russia. At last check, the Russia-Ukraine conflict is still active and shows no signed of waning. Therefore, it’s perfectly reasonable to assume that the availability of palladium will be limited for the foreseeable future.

Not to mention, Russia recently warned that U.S. involvement in the Middle East, and especially against their ally Iran, would prompt Russian intervention, which has all the makings of the Gaza conflict escalating into a regional conflict, involving not only other Middle Eastern countries, but also those outside of the region. Needless to say, palladium appears to be a sound investment at the moment.

The Volatility of Platinum

Another regular customer occasionally sells us platinum and remarked that the price of platinum appears to be extremely volatile. This is due in part to platinum being an industrial metal first and foremost and an investment metal second. As the need and demand for platinum increases for industrial purposes, so does the price.

At the moment, the industrial needs and demand and supply dynamics point to prices being low, but that will likely change in the future, as platinum is an extremely rare metal (about 10 times as rare as gold). It is also mined in countries that are known for their instability, such as South Africa, and Russia, which as we mentioned above has been sanctioned by the U.S. and the West.

March of 2008 marked the all-time high of platinum at $2,270 an ounce.  Historically, platinum has been more expensive than gold, but in recent years, the two have swapped positions, with gold now more than double the price of platinum. At present, the price of platinum is $850, which means that it has a long way to go until it reaches its all-time high.  To our knowledge, no major platinum deposits have been identified since March of 2008, which means that platinum will be scarcer in the future. Furthermore, as platinum becomes more popular as an investment metal, demand for the metal will likely drive up the price.

The Volatility of Silver

Silver has also been known to be a volatile metal, but not to the same extent as platinum and palladium. While silver has many industrial uses, there’s widespread use for silver as an investment metal and for jewelry purposes. The all-time high of silver was reached in 1980 at $50 an ounce when the Hunt Brothers cornered the silver market. It also reached nearly $50 an ounce in April of 2011 following the Great Recession in response to money printing by the Federal Reserve.

Recently, the price of silver has been trading in the $20 – $25 range, although it may differ by the time you read this article. Many financial experts (especially those in the precious metals sector) believe that it’s the cheapest investment on the planet and that it has tremendous upside.

At one point in time, the gold to silver ratio was approximately 16 to 1. In recent years, it has traded more in the 50 to 1 ratio. At present, it’s approximately 84 to 1. If you use the gold to silver ratio as your barometer to determine which metal you should purchase, silver appears to be a screaming deal.

One other factor to take into consideration is that the amount of silver currently being mined to gold is roughly 10 to 1. This doesn’t necessarily mean that the gold to silver ratio is going to adjust to this level, but it is telling that silver is relatively scarce. Furthermore, as silver continues to be used for industrial purposes, and if we continue to focus on alternative energy sources, such as solar panels, demand will continue to increase for the foreseeable future.

The Volatility of Gold

Last, but not least, is gold. Gold is the steadiest of the precious metals and is used primarily as a monetary metal and for jewelry purposes rather than as an industrial metal. The entire world at one point in time was on the gold standard. The U.S. was the last remaining country to sever the relationship between gold and the dollar in 1971. Still, to this day, gold is viewed by countries as a monetary metal and a store of value, as is evidenced by the high demand for gold by central banks.

At present, the U.S. still has the largest reported gold reserves at 8,000 metric tons, but many countries are quickly catching up, especially those in the East and Middle East. Due to the high demand for gold by investors and countries alike, the price doesn’t fluctuate as much as the other metals. However, with the current price at $1,970, it appears to be woefully undervalued, especially when you consider the amount of debt relative to the gold price.

As an exercise, we converted 8000 metric tons to troy ounces, which gives us 257,205,973 troy ounces. This sounds like a huge amount, which it is, but when you compare it to our national debt of roughly $33 trillion, it’s less impressive.

If the U.S. were to go back to a gold backed currency with 100% reserves, this would put the gold price at roughly $128,300 an ounce. We’re not necessarily predicting that the price of gold will increase by over 60 times from current levels, but it’s not that far-fetched.

The current price of gold is closer to it’s all-time high of $2,070 set in August of 2020, but considering the level of worldwide debt and multi-trillion-dollar annual deficits (interest on our national debt is now over $1 trillion a year), it’s a safe bet that gold will continue to be a highly valued asset for the foreseeable future. While the volatility of gold is much less than the other metals, providing less of an opportunity to buy it on a substantial dip, the fact of the matter is that gold is viewed by the rest of the world as money.  As individuals in the U.S. and throughout the world lose faith in fiat currencies, they’re going to want to protect their wealth by investing in a metal that has been viewed as money for thousands of years.

Summary

In conclusion, we’ve discussed the most popular investment metals, which ones have the most volatility, and current pricing relative to all-time highs. Platinum and palladium are the most volatile of the metals, as they’re primarily used for industrial purposes, but the volatility provides tremendous upside potential, especially if you’re able to buy it on the dip.

Silver is also a volatile metal, as it has industrial uses, but it’s used much more as an investment metal and for jewelry purposes than platinum and palladium, so we don’t see the price fluctuate quite as much. Even so, at present, the price is more than 50% of its all-time high and considering that it’s only being mined at a rate of 10 times more than gold, it would appear to have tremendous upside.

Gold is the least volatile of the metals and is currently closest in price to its all-time high but is viewed by governments and individuals alike as a monetary metal. When you view the price of gold relative to the national debt, it appears to be substantially undervalued. If you’re of the belief that at some point, we’ll return to a gold standard, even if not 100% backed, it’s a safe bet that the price has the potential to explode from current levels.

We hope that today’s article provided you with some insight on these popular metals and welcome you to contact Atlanta Gold & Coin Buyers regardless of your buying or selling needs. See for yourself why we’re the premier coin dealer in metro Atlanta and beyond.