Have you heard about precious metals investing lately? Well, you don’t have to go very far to see or hear the advertisements about gold never losing its value or being worth zero or paper money being passé. With the turbulent economy in the United States and around the world, these metals have never been more popular. With the popularity of precious metals, there is a down side for many new investors. Precious metals investing can be a little intimidating when you’re not sure what to do. For example, you may not know that gold isn’t the only precious metal you can buy. You may wonder how you go about buying precious metals.
Types of Precious Metals
Precious metals come in many different forms. Let’s start with gold.
Gold is the precious metal that receives the most press. Besides, it is kind of the granddaddy of all precious metals. Gold has its advantages. It doesn’t corrode or rust. Also, gold’s value is determined 24/7. Thus, you don’t have to worry about not knowing the current value of your investment. The gold’s price isn’t affected by supply and demand because the supply vastly outweighs the volume of its demand. For example, when a large number of gold investors feel like selling, gold price drops. When a lot of investors want to buy, the gold price goes higher. However, gold never takes a huge drop in value like paper money, stocks, real estate or other types of investments.
Advantages of Buying Gold
• When money and banks are perceived as unstable, gold is often looked at as the safe, valuable investment.
• Whenever there is political strife or a war, people tend to buy and hoard gold. They can have a lifetime of savings that is stored and portable until it’s needed to trade for shelter, food or safe passage to another safe location.
• When the rates of return in the bond, real estate or equity markets are negative, individuals typically seek gold as an investment that maintains its value.
Silver’s price isn’t as stable as gold’s price. In fact, it’s volatile because the value increases or decreases based on the supply and demand in the industry. The following are some factors that cause silver to fluctuate in price:
• Silver’s value has decreased along with its prominence in the photography industry. The industry has moved to using digital cameras.
• It’s use in batteries, microcircuit markets and superconductor applications. Prices tend to increase.
• The rise of the Eastern middle class can increase silver’s price. The middle class typically creates a huge demand for items that require silver inputs ranging from electrical connections to bearings. For example, the demand for electrical appliances like televisions and even medical products increase silver’s value.
Platinum is traded in global commodities markets like silver and gold. However, platinum is sold in a smaller market and is 10 times rarer than gold. It’s not pulled from the ground as much as gold is. When the gold market is great and/ or there is political and market stability, platinum usually receives a surge in price. Platinum comes with a warning. Its price is highly volatile. So, it’s important, if you choose to invest in platinum, you diversify with other precious metals. You don’t want to make it your sole investment. For example, the U.S. Mint offers platinum coins along with gold or silver bullion.
There are many factors that affect the price of platinum such as:
• Majority of the platinum mines are located in Russia and South Africa which can create a cartel-like action that could artificially increase or support platinum’s price.
• The automobile industry heavily depends on platinum, which influences platinum prices.
• The demand for platinum tends to increase according to industry needs. The need for automotive catalysts, jewelry, chemical refining catalysts and petroleum increases the price.
Palladium is another rare precious metal. It is actually lesser known than platinum, but is growing in popularity. Like platinum, the palladium market is small and highly volatile. Its demand is driven by the metal industry. In fact, about 50 percent of the demand for palladium comes for its use in catalytic converters. The easiest way to invest in palladium is buying palladium bullion coins. The coins are tougher to find though. The U.S. Mint doesn’t have the coins for sale. There are Canadian Maple Leaf palladium coins for sale.
Options Available to Buy Precious Metals
The most common precious metals investments are shares, mutual funds and physical investments like bars and coins. In some instances, you can also buy precious metals certificates and futures. However, the latter comes with high risks involving the way they are liquidated and/ or traded. One reason for investing in precious metals is the higher perceived investment than other options. For example, paper money considerably decreases when factors like a broader currency crisis occurs. This typically doesn’t happen with precious metal investing.
Physical Precious Metals
Physical precious metals are the coins and bars you typically associate with investing in metals. The bullion is available from 400 troy ounce gold bars to an ounce of platinum ingots. The drawback of owning physical precious metals is the safekeeping, insurance, sales tax and other costs that are associated with storing your investment.
Exchange Traded Funds
Exchange traded funds, or ETFs, is the stock market of precious metals. So, you can buy, sell and trade precious metals just like you would stock in a publically traded company. It’s a convenient way of investing and selling gold or silver. If you’re interested in buying, selling or trading platinum, you’ll have to use the London Stock Exchange. Remember, it’s a commodity. You don’t have immediate access to it as you would physical precious metals.
Mutual Funds and Stocks
Precious metals mutual funds are similar to the type of funds you’re thinking about. They are based on a specific objective such as growth, balance, income or a combination of the three. The companies that offer the funds invest in precious metal mining, exploration or distribution businesses. There are three types of precious metals mutual funds:
• TD precious metals
• BMO precious metals
• CIBC precious metals
Stock and mutual fund shares of precious metals miners are usually leveraged to the price of the metals. You may want to stay away from this option if you’re not experienced in how mining stocks are actually valued.
Options and Futures
The options and futures markets are usually for those investors wanting to make big bets on precious metals. It offers the greatest avenue of profits and loses.
Precious Metals Certificates
Typically, businesses such as full-service brokers, banking institutions and dealers offer precious metal certificates at a fee. The fee may be as low as three percent or higher. The certificates are sold for a specific amount such as $1,000 units. For an additional fee, the dealers will provide storage and insurance.
Precious Metals Equities
This investing consists of trading shares of companies that engage in precious metals distribution, exploration or metals. Equities are a higher risk investment than any of the other precious metals investments. You’re not buying the metals, but shares in the company. If the company goes bankrupt, out of business or an employee embezzles the money, you may lose your entire investment.
It’s important to note that you have fast access to physical precious metals because they are in your possession. Certificates, securities and mutual funds are not readily available. So, if you need cash yesterday, you may not want to invest in the other precious metals options. For example, if you need money quickly and have coins, you can quickly exchange them for cash. If you have a certificate, you don’t have the physical gold, silver or platinum. You just have paper. No one will exchange the paper certificate for anything of value.
Buying Precious Metals
Precious metals provide a unique protection against inflation. In other words, a government can’t print more of them to inflate the price like it can with paper money. The metals have an essential value and don’t have a credit risk. Precious metals are basically an insurance policy against political, financial or military upheavals that could happen at any time.
Precious metals give you a safe and effective way to diversify your portfolio. If you’re a newbie in the precious metals investment, it’s always helpful to have an industry reference for purchasing silver, gold, platinum, palladium, coins and other precious metals. There are many industry references you can choose from, but you probably want to start with a trusted industry reference like Monex Precious Metals. Even though investing in precious metals carries little risk, you still don’t want to make any of the common mistakes that can decrease your portfolio investment like investing in all platinum or palladium and not diversifying in other precious metals.