By: Jeremy Biberdorf
June 28, 2023Investing in precious metals can be a strategic addition to any diversified investment portfolio. This guide will provide an introductory walkthrough for those who are new to investing in assets like gold, silver, platinum, and palladium. So let’s dive in and learn about the ins and outs of investing in precious metals.
What Are Precious Metals?
Precious metals are rare, naturally occurring metallic elements that have high economic value. Notable examples include gold, silver, platinum, and palladium.
These are often used in jewelry, industry, and as an investment asset.
Why Invest in Precious Metals?
1. Hedge Against Inflation
Precious metals can act as a hedge against inflation. When the value of currency decreases due to rising prices (inflation), the value of precious metals often increases. This can help protect the purchasing power of your investment.
2. Diversification
Including precious metals in your portfolio can provide diversification. This is because their prices often move independently from traditional stocks and bonds.
3. Tangible Asset
Unlike stocks and bonds, precious metals are tangible assets. You can hold physical coins or bullion, which can give a sense of security during economic uncertainty.
How to Start Investing in Precious Metals
1. Understanding Different Types of Precious Metals
Different precious metals come with different risk/reward profiles. The most commonly invested metals are gold, silver, platinum, and palladium. Gold is known for its stability during economic downturns, while silver, often considered ‘poor man’s gold,’ is more volatile but offers potentially higher returns. Platinum and palladium, on the other hand, are highly influenced by industrial demand, adding another layer of risk and potential reward.
2. Determine Your Investment Goals
Before diving into precious metals investing, define your investment goals. Are you seeking a hedge against inflation, diversifying your portfolio, or speculating on price increases? Your goals will inform your investment strategy.
3. Decide on the Form of Investment
You can invest in precious metals in various forms:
Physical Metals: This includes bullion, coins, and bars. Physical metals can be held personally or stored in a secure location.
Precious Metal ETFs: Exchange Traded Funds (ETFs) can track the price of a specific metal or a basket of metals. This allows you to invest in metals without dealing with physical storage.
Mining Company Stocks: These are stocks of companies involved in the extraction and production of precious metals. The value of these stocks often moves with the price of the underlying metals.
4. Research Reputable Dealers and Brokers
It’s essential to do your due diligence when selecting a dealer for physical metals or a broker for ETFs or mining stocks. Look for businesses with positive reviews, transparent pricing, and a solid track record.
How to Buy and Store Physical Metals
If you decide to invest in physical metals, the next step is choosing a reliable dealer. Here are a few reputable dealers:
- Money Metals Exchange: Known for their comprehensive product offering and excellent customer service, Money Metals Exchange is a reliable source for your precious metals investments.
- JM Bullion: This dealer offers competitive prices on gold, silver, and other precious metals, as well as secure, fully insured shipping and storage options. Click here to check out what customers have to say about JM Bullion.
- BGASC: BGASC, which stands for “Buy Gold and Silver Coins,” is a widely respected dealer with a fast shipping policy and a broad array of products.
Before purchasing, ensure you understand the dealer’s buyback policy, storage options, and any potential fees. Some investors choose to store their metals at home in a safe, while others prefer a secure deposit box or a professional vault service offered by some dealers.
A Deeper Look at Precious Metal ETFs
Exchange-Traded Funds, more commonly known as ETFs, offer a straightforward, cost-effective way for investors to gain exposure to precious metals without the need for physical ownership. ETFs are investment funds that are traded on traditional stock exchanges, much like individual stocks, and they aim to emulate the performance of specific indices or sectors.
What are Precious Metal ETFs?
Precious Metal ETFs are a category of ETFs specifically designed to track the performance of one or more types of precious metals, such as gold, silver, platinum, or palladium. This is achieved either through owning physical metals or using financial instruments like futures contracts.
The Benefits of Investing in Precious Metal ETFs
- Liquidity: As ETFs are traded on stock exchanges, they can be bought and sold during regular trading hours. This provides you with the flexibility to adjust your investment as market conditions change.
- Diversification: Precious Metal ETFs can track a single metal or a basket of metals, allowing you to diversify your investments across different types of precious metals with ease.
- Lower Costs: ETFs typically have lower costs than purchasing, storing, and insuring physical metals. They also offer a way to avoid the premiums and mark-ups often associated with buying physical bullion.
- No Need for Storage: When you invest in a Precious Metal ETF, the fund itself is responsible for storing the physical metal, eliminating the need for you to arrange and pay for storage.
How to Invest in Precious Metal ETFs
Investing in Precious Metal ETFs is as easy as buying shares of a stock. You’ll need an account with a brokerage that offers access to the stock market. From there, you can search for the ETF by its ticker symbol, decide how many shares you want to buy, and place your order.
Understanding the Risks
While Precious Metal ETFs offer numerous benefits, it’s essential to understand the risks. These include:
- Price Volatility: Precious metals, like all commodities, can be volatile. The value of your ETF will fluctuate based on the underlying metal prices.
- Counterparty Risk: For ETFs that use futures contracts rather than physical metals, there is a risk that the other party in the contract may fail to fulfill their obligations.
- Management Risk: The fund’s management team makes decisions about which assets to hold. If these decisions don’t pan out, the fund’s performance could suffer.
Precious Metal ETFs provide a convenient avenue for investors to gain exposure to the precious metals market. However, like any investment, understanding how they work and the associated risks is key. Always do thorough research or consult with a financial advisor before making investment decisions.
Investing in Mining Stocks
Mining stocks are another way to invest in precious metals indirectly. Companies that mine precious metals often see their stock prices increase when metal prices rise. However, mining stocks also come with additional risks associated with the company’s operations. Always research a company’s financial health, mining efficiency, and growth strategy before investing.
Tracking Precious Metal Prices
It’s vital to stay updated with precious metal prices. These prices can fluctuate due to factors like supply and demand, market sentiment, economic data, and geopolitical events. Websites like Kitco or BullionVault provide real-time tracking of metal prices.
Managing Your Portfolio
Investing in precious metals should be part of a broader, diversified investment strategy. It’s recommended to limit your precious metals allocation to a portion of your portfolio. This portion can vary depending on your financial situation, investment goals, and risk tolerance. Regularly review your portfolio and adjust as needed to align with your goals and the market conditions.
Final Thoughts
Investing in precious metals can be a sound financial strategy, providing a hedge against inflation, portfolio diversification, and a tangible asset that has held value throughout history. Whether you choose physical metals, ETFs, or mining stocks, remember to research thoroughly, understand your investment goals, and manage your portfolio actively.
Click here to check out the best places to buy gold online. Happy investing!
