Gold alternatives? How to invest in silver, platinum and palladium.

Precious metals are in high demand. Although gold has historically been the main investment metal, silver, platinum and palladium are quickly becoming portfolio diversifiers. Here’s what you need to know about investing in these precious metals, broken down into three easy, practical steps.

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Precious metals are alternative assets, which means they react to economic conditions differently than stocks and bonds. This is good for portfolio diversification, but it may test your risk tolerance if you’re not prepared.

Let’s review the uses, risks, growth drivers, and investment purposes of silver, platinum, and palladium so you know what to expect before you buy.

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Silver is purchased for investment and industrial purposes. As an investment, physical silver takes the form of coins, jewelry, tableware, and decorative pieces. The white metal is also used to make electronics, automotive components, medical devices, and solar panels.

• Risks: The price of silver is more volatile than the price of gold. Silver is also less liquid than gold, which means gold is easier to sell for cash.

• Growth drivers: Silver rises in value as industrial demand, supply constraints, and economic uncertainty rise.

• Investment purpose: “Silver provides protection from inflation and industrial exposure,” explained Eric Kroc, president of Krok Capital, a wealth advisor.

Platinum is rarer than gold or silver. This metal is very popular in jewelry applications and is essential for the production of catalytic converters that help reduce gasoline emissions.

• Risks: The price of platinum is more volatile than the price of silver or gold. Volatility in industrial demand and geographically limited supply – primarily from South Africa – contribute to platinum’s unpredictability. Platinum also has low liquidity compared to gold.

• Growth drivers: Industrial demand and emissions regulations affect the value of platinum.

• Investment purpose: “Platinum can be a stabilizing play,” Kroc explained. Crook sees platinum as a promising “under the radar” asset based on its long-term supply outlook and its role in the energy transition.

Learn more: How to invest in gold in 4 steps

Palladium, a member of the platinum group metals (PGM), is rarer than platinum. Palladium is chemically similar to platinum but is lighter and can withstand higher temperatures. It is also used as a jewelry metal and in industrial applications, and automobile manufacturers often use platinum and palladium together in catalytic converters.

• Risks: The value of palladium depends on demand for cars and reacts to geopolitical risks. Relative to platinum, palladium is less liquid and has lower trading volumes.

• Growth drivers: Automotive demand is a major driver, along with electronics manufacturing activity, clean energy innovation, and jewelry demand.

• Investment purpose: Crook described palladium as a short-term trade “due to its low liquidity and highly volatile price action.”

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You can invest in precious metals in digital or physical forms.

Digital options include:

• Precious metal basket boxes: These funds provide exposure to multiple metals and broader diversification benefits compared to single-metal funds. Aberdeen Investments owns a popular precious metals basket fund with a ticker GLTR. GLTR tracks pricing from the London Bullion Market Association (LBMA) for each metal.

• Single-metal ETFs: Single-metal ETFs, such as the iShares Silver Trust (SLV), less versatile than basket boxes. SLV tracks the price performance of silver on the LBMA.

• Futures: Futures contracts oblige you to buy or sell a precious metal under specific conditions. These risks are very high because the out-of-pocket cost is small compared to the metal exposure you gain and the amount you could lose. COMEX, a futures trading platform, sets separate terms for silver (C=F), platinum (PL=W) and palladium (pa=f) Futures contracts.

• Mining stocks. Mining stocks tend to rise faster and fall faster than base metal prices. You can choose a focused miner like Hecla Mining Company (Do) or a diverse process such as Sibanye-Stillwater (SBSW). HL mines silver, and SBSW is a large producer of platinum, palladium, rhodium and gold.

Material options for precious metals include jewelry or bullion in the form of bars and coins. If you decide to purchase physical metals, you must make arrangements for storage, security and possibly insurance.

Learn more: What to know before buying gold, silver, or platinum from Costco

Your investment objective should guide key decisions regarding precious metals investing, including:

• Whether you buy a single metal or a basket of them

• What form should your investment take?

• The amount you allocate to precious metals within your portfolio

Two common investment objectives for precious metals are diversification and short-term gains.

Long-term investors typically seek precious metals for diversification and inflation hedging. Silver, platinum and palladium have a low correlation to other asset classes, such as stocks and bonds. This means that metals can rise when stock prices fall, especially when inflation is the root cause. These compensatory behaviors, in small doses, can limit a portfolio’s overall volatility.

Crook described silver, platinum and palladium combined as “useful pieces of an unrelated triad,” suitable for investors who already own stocks, bonds and cash. It is recommended to allocate 3% to 5% to the trio, primarily as an inflation hedge.

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Short-term trading of precious metals is an advanced and high-risk strategy. It is best to avoid this unless you are experienced, well-financed, and hearty enough to withstand large price fluctuations.

Silver, platinum and palladium individually are considered volatile enough to provide short-term gain opportunities. The silver position is the least risky of the three, while palladium-focused investments are the riskiest. According to Crook, palladium is trading at a huge premium to silver and gold, “but if you can withstand its wild volatility, there is a chance palladium will rise.”

Your allocation to a short-term strategy should be low, i.e. the amount you can afford to lose.

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Silver can provide diversification and protection from inflation within a well-structured portfolio.

Platinum is more volatile than silver and gold, but has diversification benefits. A small strategic position in platinum can act as a stabilizer for a portfolio over the long term.

You can invest in palladium bullion or choose digital assets such as ETFs, futures or mining stocks.

Tim Money Edit this article.