Investing in Precious Metals
Gold, silver and platinum, the principal precious metals, have a long history of consistent of value even as nations and their currencies come and go. appear and vanish. Only since the 1970s has the value of the US Dollar been completely removed from a fixed measure of gold or silver. As a result, inflation has skyrocketed and the price of precious metals have increased several thousand percent. Even so, many investors continue to believe precious metals are an important hedge against inflation and store of wealth and allocate to it at least 10 percent of their investment portfolio.
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Things You'll Need
- Capital to invest
- Access to online marketplaces
- An investment or online brokerage account
Instructions
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Buy physical. Either through recognized bullion dealers, coin shops, or online auctions such as eBay, acquire physical precious metal in the form of investment grade (.999 fine) bullion. Those manufactured by sovereign nations are the most popular, especially US Eagles and Canadian Maples, but those assayed by recognized miners and mints such as Engelhard or Johnson Matthey will do. The ownership of physical metal is like having spare cash on hand in case of emergency.
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Use Exchange Traded Funds (ETFs). A somewhat more sophisticated investor looking to trade rather than buy-and-hold precious metals will be interested in the numerous metal related exchanged traded funds. While these are not redeemable for physical metal, they do allow the vigilant investor to buy and sell with the same ease as stocks with low fees.
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Trade futures. Commodity futures are contracts for delivery of large quantities. As such they are usually purchased with leverage, that is, borrowed money, and rarely taken for actual delivery. For all but industrial or large commercial consumers, futures contracts are purely trading vehicles and, because of their high liquidity and price, carry significant risk. Futures are only recommended for the most experienced traders!
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Bullions pools. Some reputable brokers sell shares of a commodity pool that may or may not allow the buyer to redeem for physical metal. Read the fine print before buying into a bullion pool--the main benefit is to have physical bullion stored by a reputable dealer. Pools that do not allow redemption of physical metal are obsolete with the proliferation of ETFs as trading vehicles.
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Tips & Warnings
Never buy all at once. Even if you take the time to study and plan your buys, which is highly recommended, buying in stages will allow an investor to lower their cost basis if prices decline in the short term.
Dollar cost average. Not only is it a good idea not to buy all at once, many investors prefer to set aside a set amount each month or each quarter to invest in precious metals, purchasing the same dollar value over each period.
When purchasing physical metals, be sure to know the spot price. Most dealers will charge a premium over spot, but paying more than 5% over should be avoided if possible.
Not all precious metal is created equal. That in jewelry or antique silverware, for example, while somewhat valuable, is not the same purity as investment grade bullion. Spot prices refer to .999 fine metal.
Not all bullion is created equal. Recognizable assay marks will be the most liquid and command a higher premium over spot price.
As with all investments, their is risk associated with buying precious metals. Whenever possible, consult with a professional before making investment decisions.
Resources
- Photo Credit Northwest Territorial Mint
