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What is the ultimate physical metal investment?

- By: John P Sykes
Posted in: Blog, Commodities


Unlike most metals, a large proportion of gold’s ‘consumption’ is to hold it as a physical investment. What is it that makes gold a good physical investment, and with gold at its current highs, are there alternative metals, or even any other elements, that could provide an alternate investment opportunity? If so, what are the implications for the mining industry – does this create new opportunities?

Why the obsession with gold?

Firstly, we must try and understand the historical incentives behind the allure of gold. Why are people so attracted to gold?

A little ancient history

Historically the main obstacle to the use of metals was their availability for extraction and use. The “metals of antiquity” were the seven metals known earliest to man – gold, silver, copper, lead, tin, iron and mercury. Of these, four could be found in their native state (gold, silver, copper and mercury). The others – lead, iron and tin – could be smelted at a low enough temperature to be extracted. These were the only elemental metals known until the 13th century.

Of these metals, the rarest was gold, then mercury, silver, tin, lead, copper and iron. It is therefore no surprise that gold and silver were valued as “precious” and used in jewellery and other symbols of power, whilst copper and tin (Bronze Age), iron (Iron Age) and lead were used for industrial purposes.

The malleability of gold and silver also made them impractical for many industrial purposes, which generally required an element of hardness for their use. As such, their uses were predominately aesthetic, where their ductility, malleability and chemical durability were of use. Despite its rarity, mercury was probably limited in its use as a “precious” metal because of its liquid state, limiting its ease of transportation.

Market properties

Arsenic, antimony, zinc and bismuth were discovered in the 13th and 14th centuries, with platinum following in the 16th century. These twelve metals were the only known metals until the 19th century. Of these, only platinum and bismuth were of the same order of rarity as gold, antimony is about as rare as silver, arsenic as rare as tin, and zinc as rare as copper.

Of these twelve metals only platinum has since risen to the ranks of a “precious” metal, although it also has a number of industrial uses. Initially, platinum was sometimes used to create “fake” gold coins, but eventually became a precious metal in its own right. The advent of widespread mining of platinum, increased its availability sufficiently that it could be used as an internationally recognised store of value. Unlike the ancient precious metals of gold and silver, and to a lesser extent bronze, platinum is found neither in its native form nor as an oxide ore that can be smelted at low temperatures. It took industrial advances in both mining and metallurgy to make platinum (a metal as rare as gold) widely available. Platinum therefore provides evidence that as society advances “new” precious metals could become traded, as previously metals with the correct physical properties but limited availability become more widely available. So what metals, or indeed other elements, might they be?

The golden rules

There seems to be a number of physical properties required in a material to make it a good store of value:

  • Natural- not a synthetic metal made only by curious scientists in laboratories.
  • Solid – it’s fairly obvious that liquids and gases are more expensive to store and transport. Gases, in particular, are vulnerable to an accident where quite literally your investment could disappear into the ether.
  • Stable- it is important that your wealth doesn’t physical degrade or disappear.
  • Non-toxic- if it is to be easily stored and transported, the less expensive environmental storage conditions that can be avoided the better. Radioactivity is, of course, definitely to be avoided, but really anything you would not have around the house, or upon your person should be ruled out.
  • Scarce- your chosen investment element has to be sufficiently scarce, that everyone else cannot just dig it up and saturate the market, depress prices, and destroy your investment.

Added to this are some “market requirements” to make it a good investment:

  • An open market– to meet “market requirements” there must first be a “market” – not all elements are yet traded on an open market
  • High value- meaning lower volumes and therefore lower costs to transport and store, ideally such is its high value that it can be stored in jewellery boxes and transported around your neck or on your finger.
  • Liquid market- whilst rarity puts a premium on your investment, as many people with highly specialised investments found at the end of 2008, you need a certain amount of market liquidity to be able to realise the value of your assets, so this probably rules out the rarest of the rare.

The final requirement, that equity investors will be familiar with is that the prospective new investment should be due a “re-rating”. Ideally, the element should meet the physical criteria but fall just short of the market requirements, but with the prospect of a significant change in market conditions, that would then allow it to meet the criteria and be an undervalued physical investment:

  • Re-rating due– gold is possibly already overvalued, so the ideal physical investment would still be undervalued

So, we have unrolled our copy of the Periodic Table and we are now going to quickly go through and eliminate those elements that don’t comply with the features above, to see what we’re left with. There are currently around 118 elements, ranging from hydrogen to ununoctium (of which only three atoms have ever been synthesised) in the Periodic Table.

Physically fit

Naturally occurring

Of the 118 elements, everything beyond 103 is only made synthetically, along with most of the ‘Actinoids’ (one of the lines that folds out of the bottom of the Periodic Table), where only three of the fourteen occurring naturally – thorium, protactinium and uranium. One of the fourteen ‘Lanthanides’ (the other fold out line), home of the currently fashionable rare earth metals, promethium, is synthetic. Elsewhere, elements 84 (polonium – the KGB’s favoured poison) through 87 (francium) are synthetic, along with element 43, technitium. All in all that rules out 33 of the 118 elements, leaving 85.

A solid investment

Of the 85 left, there are two elements which are liquid at room temperature, mercury and bromine, as well as a number of gases. Naturally occurring elemental gases include the rest of the noble gases (helium, neon, argon, krypton and xenon), and some more common ones – fluorine, chlorine, nitrogen and oxygen, and the most common, hydrogen. Gallium also becomes liquid at temperatures only slightly above room temperature, so is not suitable either. This removes another 13 elements, leaving 72.

Avoiding the unstoppable decay of time

Obviously you don’t want your investment degrading into something worthless. Radioactivity is the most common form of instability, as well as being somewhat of a hazard, so radioactive elements should be ruled out. This rules out three better known radioactive elements – uranium, thorium and radium; and one lesser known element – protactinium. This leaves 68.

The other kind of stability is chemical stability. It is no good your investment washing away in the rain. This rules out elements which react readily with water, primarily the ‘alkali metals’ including lithium, sodium, potassium, rubidium and caesium; and the ‘alkali earth metals’ excepting beryllium – magnesium, barium, strontium and calcium. Phosphurus ignites spontaneously in air, so would be difficult to store, whilst iodine is also unstable in water and air. This brings the number of potential investment elements down to 57.

Non-toxic – safe for children

To avoid high storage and handling costs, potential environmental lawsuits and to protect your health, if you are an active physical investor, it is best to avoid the toxic elements. The Dartmouth Toxic Metals Research Programme lists arsenic, cadmium, chromium, copper, lead, mercury (already eliminated as a liquid), nickel and silver as toxic metals. Searching around the internet also shows antimony, beryllium, osmium, selenium, tellurium, thallium and vanadium to be potentially toxic. The metals associated with ‘heavy metal poisioning’ are lead, mercury, cadmium, thallium, arsenic (all already listed) iron and bismuth (not yet listed).

Iron and aluminium technically can be toxic in large amounts, particularly for already compromised individuals, but in general are safe and won’t be eliminated because of toxicity. In a similar vein (and applying the rules above) copper (pipes), nickel (plating) and silver (jewellery) are all found around the house or upon the person, so probably are not toxic enough to worry about. Similarly, the toxicity surrounding antimony, beryllium, chromium, osmium, selenium, tellurium and vanadium is usually to do with their compounds, rather than the elemental form so these are probably okay.

There is no doubt, however that arsenic, bismuth, cadmium, lead and thallium are toxic, so these are ruled out. This brings the number of potential investment elements down to 52.

Geologists required

We need elements that are sufficiently rare to be a stable investment, not vulnerable to a market going into oversaturation. Anything more geologically abundant in the earth’s crust than carbon is probably no use as a physical investment, so this eliminates silicon, aluminium (though admittedly aluminium oxides as rubies and other precious gems have potential), iron, titanium and manganese from our list, reducing it to 47. Carbon itself should probably be ruled out, even though it is already heavily traded and invested as either coal, hydrocarbons (oil and gas), diamonds or more recently carbon dioxide. In general, with the possible exception of diamonds, carbon does not really have the potential as a physical investment, either due to its ubiquity (coal), liquid or gas state (oil and gas), lack of uniformity (diamonds) or market dynamics (the aim is to not physically hold CO2). Thus the list is reduced to 46.

There are also a large number of elements that belie their actual rarity, which are mined extensively and therefore physically are very abundant. These elements have a wide variety of industrial applications and their own market dynamics. Such elements are likely to be low value anyway, but again are vulnerable to oversupply. With this in mind Greenfields eliminates any element of which more than about 100,000 tonnes per year is produced. Therefore, boron, chromium, copper, nickel, sulphur, tin, and zinc leave the list reducing it to 39.

So, we now have our list of 39 elements which have the correct physical properties for physical investing: beryllium, scandium, vanadium, cobalt, germanium, selenium, yttrium, zirconium, niobium, molybdenum, ruthenium, rhodium, palladium, silver, indium, antimony, tellurium, lutetium, hafnium, tantalum, tungsten, rhenium, osmium, iridium, platinum, gold, lanthanum, cerium, praseodymium, neodymium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium and ytterbium.


Price required!

We are not quite at our conclusion yet. The elements need to be sufficiently high value that they are not prohibitively expensive to transport and store. Quite what the level of expensive is where storage and transport costs become prohibitive is relative. If you’re an international trading house with spare freight and warehouse capacity, then obviously very little is prohibitively expensive to ship and store, however, we do not all have the means of Glencore and Trafigura.

Some of the elements listed are so infrequently traded that it is difficult to find prices for them, such illiquidity is again no good for an investment. This eliminates nine metals from our list including the rarest of the rare earth metals – lutetium, holmium, erbium, thulium, ytterbium and scandium, as well as hafnium, zirconium, niobium and tellurium. This reduces the list to 29 elements.

At least as valuable as silver

Now using the range of prices for these elements over the last year, we can get an idea of those which are probably valuable enough to be a useful investment. As a good proxy to value we’ll use silver, which seems to be the least rare and least valuable of the current crop of “precious” metals – as defined by their abundant use in jewellery – gold, platinum, palladium and silver.

According to Infomine, silver has ranged in price from about US$ 12-19/oz over the last year, converting into a price of US$ 496/kg. A number of elements don’t even come close to this price level, so they are removed from the list, including vanadium, cobalt, selenium, yttrium, molybdenum, antimony, neodymium, praseodymium, samarium, gadolinium, lanthanum and cerium. This now brings our list down to just 17 metals – beryllium, germanium, ruthenium, rhodium, palladium, silver, indium, tantalum, tungsten, rhenium, osmium, iridium, platinum, gold, europium, terbium and dysprosium.

When looking at price though, what we are actually looking at is how much value can be stored in your available storage space, and easily transported around, so it’s probably also worth considering the density of the metals left. How much value can be stored in a cm3, a volume slightly smaller than that of a UK pound coin?

Again silver has a value of about US$5.20 per cm3, so metals with values less than this probably are not suitable as a physical investment, thus tungsten, indium, europium, tantalum and beryllium (though again this metal has some investment potential as a gemstone with beryls, such as emerald) are removed from the list. This leaves us with a prospective list of twelve – germanium, ruthenium, rhodium, palladium, silver, rhenium, osmium, iridium, platinum, gold, terbium and dysprosium.

…but in a liquid market

Finally, we come to market liquidity. Whilst your chosen investment metal needs to be sufficiently rare (all of which the remaining candidates are) that it carries a premium price, you must also be able to realise the cash value of your investment fairly easily if required. This is essentially a measure of the value of the new metal produced each year, thus indicating your chances of being able to get your hands and some, and also more importantly that there are sufficient other people wanting to get hold of it, if you decide to off load.

So using data from the USGS on annual production of these metals and multiplying by their unit value, we can see that unsurprisingly gold is by far the largest and most liquid market (about US$95 billion). Equally unsurprisingly are second and third placed elements – silver and platinum, with an order of magnitude smaller market for silver (about US$11 billion) than gold, and an order of magnitude smaller again for platinum (about US$1.3 billion) than silver.

Gold, silver and bronze medals go to gold, silver and… platinum

These results are not that surprising as gold, silver and platinum are currently the leading physical investments, either as bullion, coins or more often just as jewellery. It would appear gold, silver and platinum, have replaced gold, silver and bronze as the precious metals of antiquity. This is perhaps most observable in modern society constructs such as credit cards and club memberships where the premium offerings are platinum, gold and silver levels, rather than gold, silver and bronze, as you would find in more historically grounded rankings such as Olympic Games medals, which still value the traditional gold, silver and bronze metals.

But what of the other prospects?

It is however interesting to look a little further down the list and see which metals might become contenders as a physical investment. Next on the list are two other platinum group elements, palladium with its larger production and lower value than platinum (and a market worth about US$250 million); and rhodium with its extremely high value and limited production (and a market worth about US$200 million). That gold and the platinum group metals come out top is perhaps no surprise, they are amongst the rarest of the metals in geological terms and are already used to a greater or lesser extent for investment, and certainly the semi-investment of the jewellery industry.

However, not all PGMs are a suitable investment. Osmium has just too smaller market, with less than a tonne produced each year, and annual production worth only about US$12.86 million, the smallest market by value of the final twelve elements. Despite surviving the round on toxicity, questions would also have to be asked about osmium powder (which is generally how it is sold) and how it readily converts into a very toxic oxide powder. Again with annual production worth only about US$45 million and US$50 million, iridium and ruthenium, have too illiquid markets. Outside of the platinum group metals, with annual production worth less than US$50 million rare earth element, terbium, and rhenium probably have little future as a physical investment.

But falling in between rhodium (with its limited use in investment and jewellery) and ruthenium (which seems to have no investment related market, jewellery or otherwise) are two metals with markets approaching the US$100 million level – dysprosium and germanium. Currently these two markets are still probably too small to be reliable physical investment metals; however, if demand was to pick up for these metals and the size of the market increase, they could provide potential vehicles for physical investment. This is the “re-rating” we listed as our last criteria.

Time to invest in dysprosium and germanium?

Possibly yes to dysprosium

Dysprosium is a rare earth metal and a key metal in rare earth magnets which are finding uses in many new technologies such as consumer electronics, hybrid car batteries and wind turbines, where the metals high magnetism compared to its density, is useful in miniaturisation. Clearly the metal is associated with a number of strong long term demand fundamentals, so it would be expected for both prices of the metal to increase, as well as production and availability.

The main question surrounding dysprosium though would be availability. 95% of rare earth metals (including dysprosium) are mined in China and this gives the country too much influence over the market for you to have sufficient confidence in its reliability. The country has already announced plans to limit exports and fix prices. The importance of dysprosium in a number of military technologies is leading to government interest in it as a “strategic” metal. Whilst its importance in a number of leading technologies in electronics and the “green” economy means the large industrial conglomerates are increasingly interested in establishing a more varied supply chain. As such there is currently great interest in developing new rare earth mines outside China.

It would appear then that dysprosium is on the verge of a “re-rating” with demand, value, supply and availability potentially all increasing greatly in the medium term. This could be a future physical investment metal. From a practical point of view, like gold, dysprosium is soft so will need to be alloyed slightly for use in jewellery. Platinum is also alloyed for use in jewellery as it is too brittle by itself. Like silver, it also oxidises slowly in air, and more readily in hot water, so again some alloying and careful maintenance would be required. The final question remains though, how long will it be before we see rap superstars sporting chains of dysprosium?

Probably no to germanium

Germanium is associated with similarly futuristic markets, traditionally being an important part of the semi-conductors involved in solid-state electronics, that were very influential in product miniturisation in the mid-20th century, but now more associated with fibre-optics. Though these demand sectors may not be quite as attractive as dysprosium’s, the fact that germanium is produced in reasonable volumes in the USA, as well as Russia and China, means the market is probably somewhat truer.

However, from the point of view of a re-rating, the metals time has probably passed. The opportunity associated with a great increase in demand was really the mid-20th century, whilst the potential opening up of supply, would probably have occurred following the collapse of the Soviet Union in the 1990s, when replacement supply would have to have been found elsewhere in the world. It would appear germanium’s time may have passed as a potential investment metal.

The implications for mine project development

Greenfields specialises in analysing mine project development, so you may be beginning to ask what do potential new physical investment metals mean for mine projects? To answer this it’s perhaps best to look at the metal that has come out as the best investment metal and that is also probably the miner’s favourite to find – gold; and how these two issues are linked.

From a mining point of view gold has a number of advantages, its high value combined with often simple processing techniques mean it is cheap to mine from a capital perspective. As discussed though, much of gold’s high value is related to its worth as an investment. This is an advantage to miners as gold is very marketable. There is always a buyer – if not a trader, end user or investor, an exchange or government. Gold’s value as an investment creates a large liquid market with many potential buyers.

From a more practical point of view, the well understood and internationally open market in both physical and paper gold mean that the metal can be hedged or forward sold, to help with accessing finance for starting up a mine. Finally, gold has a strong brand, unlike many other rare metals, a potential miner doesn’t have to explain what the metal is and what is used for – this must help with accessing finance.

In conclusion, any rarer metal that is becoming more interesting to investors and thus may have a larger, more liquid, well known market is a metal that will be easier to acquire financing to mine and easier to market for sale. The high value of such a metal means the amount that has to be produced to create a significant cash flow is small and thus capital costs are lower. Dysprosium and the wider group of rare earth metals may provide great opportunity to junior and small-scale miners, if a more open and widely understood market was to open up.

But why gold?

One final little question remains though. Just why is gold such a popular physical investment, as coins, bullion, jewellery or as support for paper investments (and previously entire currency systems). Platinum and bismuth are about as rare and have now been known for many centuries.

The final characteristic of gold not yet discussed, is perhaps its ultimate from an investment point of view – colour. Gold is one of two non-greyish metals creating quite a powerful ‘brand identity’ for an investment. On a practical level this also makes the metal easier to identify, which in primitive times would have made it easier to avoid forgery.
The colour theory is perhaps supported by the investment furore that occasionally surrounds the other coloured metal – copper. Despite copper holding no better physical characteristics than many other transition metals (as our analysis has shown) it does seem to attract more attention as a metal investment.

Gold, silver and bronze are the historic stores of value and monetary metals, and this could perhaps be best interpreted as the most valuable coloured metal, the most valuable grey metal and the other unusual coloured metal.