Do you want to begin investing in precious metals? Here are some facts to consider before you start to invest in gold, silver, platinum or palladium.
Many new investors initially think of gold bars, coins and jewelry when they hear the term “precious metals.” These metals are actually found in many essential products and technologies we use in our daily lives. Precious metals are in major demand worldwide right now because they are used in the manufacture of thousands of different high technology products like electronics and automotive, communications and medical devices.
Precious metals are also in demand because they have an “intrinsic value” as physical assets, unlike other investments such as stock certificates, which have no intrinsic value beyond the paper they are printed on. If there is ever an economic collapse, for example, you will be able to trade metal bars or coins when other types of investments lose all of their value.
You can invest in precious metals in several different ways including:
• Directly purchasing bars (otherwise known as bullion) or newly minted coins from government mints or private companies
• By investing in Exchange Traded Funds (ETFs) that are based on bullion
• By purchasing stock shares in metal mining companies
• By investing in mutual funds that have a stake in metal mining companies
• By trading in antique coins (which might have higher values as works of art or cultural relics that surpass the value of the metals they are made from)
Remember you will require secure storage to hold any precious metals you personally take possession of, and understand there can be some price volatility in the precious metals market, making this type of investment riskier than other investment options in the short term.
Although precious metal investing can be riskier than other types of investments, many experts note that holding some metals in your portfolio is a good idea from a diversification perspective. Diversification reduces investment risk by spreading risk across different investment types. If there is a sudden drop in value affecting one type of investment, investors with diversified portfolios will be able to absorb and recover from that risk quickly versus those investors who went “all in” and lost all of their funds.
Precious metals are traded in global commodities markets, so their market values fluctuate daily. Investment professionals often recommend taking a long term investment view when buying precious metals because of these daily fluctuations. In other words, don’t try to make money as a precious metals day trader if you don’t have some background or training in that kind of trading. Use a long term outlook and think about holding your precious metals for multiple years, not for mere days.
If you have an investment broker or use an online brokerage firm, contact them to ask about how you can invest in precious metals safely via the stock, ETF or mutual fund options they offer. Your broker will give you a current assessment of the status of the precious metals market so you can decide if now the best time to try precious metals is. But remember, as already mentioned in our precious metals report, choose your brokerage very carefully.
Take a look at this 2014 outlook on PM below, by David Morgan