Precious metal

A precious metal is a rare metallic element of high, durable economic value.

Chemically, the precious metals are less chemically 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 platinum, palladium, and iridium.

The demand for precious metals is driven only in part by their practical use; it is also driven by their value as investments. Palladium is, as of January 2004, valued at about half the price of gold, and platinum at about twice that of gold. Silver is substantially less expensive than these metals, presently at 1/65 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 "10-dollar" gold coin containing 1/4 ounce of gold -- as of January 2004, this coin is worth over $100 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.

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.

Precious metal status

The status of a given metal as a precious metal depends upon its rarity. 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 aluminum. Aluminum 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 aluminum 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, aluminum was more valuable than gold, but the prices dropped continually and collapsed altogether when an easy extraction method was discovered in 1889.