Investing in metals: What's important?

News 11.02.2016

When considering an investement in metals, it is important to know there are the options of industrial metals as well as precious metals. For investments in industrial metals – such as Copper or aluminium – the respective investment funds, ETFs or certificates, are usually the instruments of choice. When it comes to precious metals such as gold, silver or platinum, however, there is also the possibility of physical possession.

When deciding on investing in a precious metal, two basic factors should be considered: the tax treatment of a given precious metal and the respective degree of utilization as a raw material. The latter factor determines how dependent the price of a given precious metal is on the economic trends of the industries that utilize the metal in question. For example, platinum, rhodium and palladium are used less for investment purposes than as pure raw materials, although they are offered to investors as bullions or coins. The price performance of these metals depends primarily on the demand for them as raw materials. Platinum and palladium are put to use in the automotive industry, while the industrial metal copper is needed in the production of overhead contact lines for trains. In cases like these, and depending on the economic development of individual regions or industries, the prices of these metals might prove much more volatile than those of precious metals primarily used as assets, such as gold or silver. With gold, the degree of industrial utilization is well below 10 percent, and therefore has minimum influence on the price development of gold.

Furthermore, taxing the purchase of precious metals has proven very specific: when buying silver, platinum or palladium bullions, investors usually have to pay 19 percent VAT, as opposed to gold bars which are VAT-free – a clear disadvantage for investors. Regarding silver coins, the tax situation is slightly better, but again: at least 7 percent VAT will be charged. Among other important factors, such as the performance of major stock indices, investors should take these factors into account when deciding on the metals they plan to invest in.

Arnulf Hinkel
Financial journalist

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