Thirty-eight analysts vetted by the London Bullion Market Association predicted the average gold price per ounce would be $1,974 in 2021, based on a report on Kiplinger. For centuries, gold and silver have been revered by many and highly sought after. Even today, these precious metals are considered highly valuable and have a spot in every savvy investor’s portfolio. With governments devaluing paper currency almost every day, diversifying your investments far from printed money is a smart move to protect your wealth. Adding precious metals to your portfolio is one of the best investment alternatives out there. However, to enjoy high returns on your investments, there are several factors you must consider. Below are some of the top considerations when investing in precious metals.
Types Of Precious Metals To Invest In
Undoubtedly, gold is a perfect choice for any investor because it has a large and liquid market, thanks to the high demand for gold jewelry and investments. However, there are other precious metals you can invest in besides gold. You can opt for silver, palladium, or platinum. Typically, silver is more linked to economic activities, and it’s affordable and available in small quantities. These features make silver an excellent option for anyone interested in making small investments.
On the other hand, investors trade platinum consistently on the global commodities market, just like silver and gold. But be aware that it demands a higher price per troy ounce than gold during times of political and market stability because it’s rare. Meanwhile, palladium is a lesser known precious metal and has properties similar to platinum.
If you invest in precious physical metals (bars, rounds, or coins), make sure you’re familiar with the mark-ups involved. Silver and gold coins or bars have mark-ups ranging from 2% to 8% over the current spot prices. For example, gold prices at the end of 2020 were about $1,890 per ounce in the spot market. Sovereign one-ounce gold coins traded at premium rates of 5% to 10% depending on rarity, purity, dealer inventories, and volume.
With this in mind, always compare the mark-up among the number of bars or coins your dealer offers. For instance, let’s say you want to buy silver in bar form, and wish to hold it for a couple of years. In addition to checking the size and quality of silver bars, make sure to evaluate the mark-up and mark-down rates versus the estimated management costs you’ll pay for owning closed-end funds or ETFs.
Digital, Paper, Or Physical Precious Metals
Another important consideration when investing in precious metals is ownership. As an investor, you want to be sure you have direct ownership of precious metals. To achieve this objective, you should choose to invest in precious physical metals that come in bars and coins. Digital gold and fully-backed exchange-traded offerings also guarantee ownership titles. In contrast, investing in precious metals in a paper format like gold certificates doesn’t give direct ownership. Because physical metals do not back them, paper gold or futures contracts can’t be exchanged for physical metal.
How To Invest In Precious Metals
If you’re like many people, you’re probably thinking of buying precious metals in coins and bar form and storing them in a safe until their value rises. But that’s not the only way to invest in gold, silver, or platinum. You can choose to invest in silver and gold stocks, exchange-traded funds, precious metal IRA, or futures and options. Each investment option has benefits and disadvantages. Therefore, spend a considerable amount of time learning different precious metal investment options. For example, ETFs ( exchange-traded funds) don’t allow you to access gold, platinum, and silver in physical form. However, investing in exchange-traded funds is the most convenient and liquid way of trading precious metals. The downside of this option is that you risk losing your funds if the company holding the ETFs goes bankrupt.
If you opt for stocks or mutual funds, you’ll be buying shares from companies that mine precious metals, meaning you won’t be investing in the precious metals directly. On the other hand, futures and options are ideal for investors willing to make big bets on precious metals. The benefit of futures and options is the potential for high profits. But they are volatile, and you risk losing a lot of money. Precious metal IRA allows you to save your retirement money in gold, silver, or platinum bullions. When you choose to invest in a precious metal IRA, your bank keeps the physical metal in your account, saving you the burden of transporting and storing your metals.
Storage And Safekeeping
Before investing in platinum, silver, or gold, it’s crucial to determine how you’ll keep them safe, as they are prone to theft. There are various ways of storing precious metals, like keeping them in a safety deposit box in a reputable bank or a personal safe in your home. Many precious metal investors prefer storing their bullions in bank safety deposit boxes or in a safe at home because they are assured of convenience. However, you may also rent off-site vault storage or a private third-party storage facility. Off-site vault storage with a third-party company is preferred as it guarantees maximum safety. Storing precious physical metals in an off-site vault storage allows you to diversify your holdings geographically. You are also sure your precious metals are insured against any risk by the storage company.
Know The Risks
While all investments come with a certain amount of risk, precious metals have unique risks linked to them. Note that the price of silver, gold, platinum, and palladium can drop at any time because of technical imbalance. For example, the cost of gold and silver can reduce significantly when there are more sellers than buyers. With that said, prices tend to increase during economic uncertainties. In addition to price volatility, you risk buying counterfeit metals, especially online. So, make sure you’re purchasing precious metals from reputable dealers and avoid unknown online sources.
Investing in precious metals is an excellent way of diversifying your portfolio. However, to trade in precious metals successfully, there are several factors you need to consider. First, you must determine whether you’ll invest in silver, gold, platinum, or palladium. Next, compare mark-ups of the precious metals you choose to invest in and decide if digital, paper, and physical metals are ideal for your portfolio. Also, pick your investment options carefully, determine where you’ll store your metals, and factor in all the risks of investing in precious metals.