For many years now, precious metals have been held in high regard in the investment and jewelry industry. Established companies and new companies alike have invested many resources in finding and mining precious metals worldwide. These metals have been used as a store of wealth and as currencies in different eras of human civilization. Even though fiat currencies have since replaced precious metals, the latter’s value hasn’t dropped at all.
Currently, there are different ways in which people can invest in precious metals. However, the main issue that many potential investors face is whether precious metals are still worth investing in.
This article will discuss the ways, pros, and cons of investing in precious metals.
How To Invest In Precious Metals
Unlike in the past when the only way to invest in precious metals was to buy them in physical form, it’s now possible for you to go for other investment options. Here are some of the routes you can take should you decide to invest in precious metals:
Bullion, Bars, And Coins
One of the most common ways to invest in precious metals is to physically acquire them. Bullion, which is turned into bars or coins, is an especially popular commodity in central banks. Different companies such as Oxford Gold Group sell metals such as gold and silver and provide storage services as well. When you have physical precious metals, you can store them for as long as you want and cash in on them due to their high liquidity.
Futures And Options
For investors who are risk-takers, futures and options give them a chance to make big profits by predicting the market prices of precious metals. Investors can place bets if they believe prices will rise by buying the metals then selling them after some time. However, there’s a significant risk of incurring losses if their prediction doesn’t go as planned.
Exchange-Traded Funds (ETFs)
In exchange-traded funds, investors are provided with a more liquid and cost-effective way of trading precious metals. You can buy shares of these stocks and then trade like you would any other asset in the stock market. However, the trade proceeds are in standard currency and not in the physical form of precious metals.
Mutual Funds
These are excellent for investors who aren’t knowledgeable about how the prices of precious metals move in the stock market. Investors may pool their funds together and have a fund manager invest the money on their behalf. However, the fund managers may decide to invest in other commodities apart from precious metals if they notice an opportunity to generate profits.
The proceeds from the mutual fund are always divided according to share percentages. You’ll also be required to pay the fund manager some percentage of your investment.
Certificates
Another way to invest in precious metals is by buying them but instead of keeping them physically, you’re awarded a certificate. These certificates usually indicate legal ownership of a specific unit of precious metal stored by a company. However, take note that such certificates may not be used as collateral for insurance or credit.
Reasons You Should Invest In Precious Metals
Investing in precious metals has several advantages. The perception of value and scarcity of precious metals make them one of the best investment options out there. Here are some of the other reasons that precious metals are worth investing in:
Diverse Investment Options
Precious metal investments used to be limited to the physical form of the metals or certificates. This meant that only a few people could invest in them, and physical precious metals were accompanied by extra costs such as transportation fees and even cases of theft. This has caused some people to be skeptical about putting their money in such investments.
However, investors today have a chance to invest in precious metals without having or storing them physically. With options such as futures contracts, ETFs, and mutual funds, any investor globally can invest depending on which one is most convenient for them. This has also eliminated the hassle of handling physical precious metals.
High Demand And Low Supply
One great advantage of investing in precious metals is that you can be sure of either steady or increased value due to their high demand. Gold, for example, is used in the high-end jewelry market, where demand has increased significantly over the years. However, due to continuous mining, the supply of these metals has decreased, so it can now be challenging to meet the high demand for precious metals.
With the high demand for and the low supply of precious metals, their value will only go up. This means that if you buy gold or other precious metals now and hold them for some time, you’ll likely be able to sell them at a higher price later on, allowing you to make a profit.
Have A Hedge Against Inflation
Another reason that precious metals are a worthy investment is that they’re immune to inflation. In contrast, fiat currencies are prone to inflation in case of economic recession, and they tend to lose their purchasing power over time. Therefore, if you invest in fiat currencies, then their value might suffer because of inflation.
On the other hand, an investor with precious metal investments will be protected in that same situation. The Price of Gold in Canada, as well as other precious metals elsewhere, tends to increase when fiat currencies drop. The stability of precious metals when the economy is shaky makes it an excellent investment option.
Diversification Of Investment Portfolio
A healthy portfolio is diversified with various investment options. This helps spread the risk of losses among your investments, unlike when you decide to invest your money in only one option. For example, if you decide to invest in nothing but real estate and the market crashes, you’ll suffer significant losses.
However, by holding part of your investment in precious metals, you’ll have a safety net to fall back on. So even if the real estate market crashes, the precious metals you own will protect you because the market for them is relatively stable.
Precious Metals Are Timeless
Unlike other investments that have peak seasons and off seasons or fade with time, precious metals have been there for ages. Therefore, they have a good reputation among seasoned investors as those individuals know that metals aren’t a come-and-go type of investment.
This means that people looking for long-term investments should lean toward precious metals due to their stability. If you invest in gold or silver now, you can be sure that your investments will remain relevant for many years to come. Moreover, the importance of these metals to jewelry and other luxury industries indicates that they aren’t going away anytime soon.
High Liquidity
A significant problem with certain types of investments is slow liquidity. Liquidity is the ability to convert an asset, commodity, or stock into money. Other investments may take time before being converted back into cash, and this may disadvantage investors who rely on the liquidity of their assets.
For example, to sell a real estate property, you have to list it on various platforms and do some marketing in order to attract potential buyers. You might have to wait a while if there’s a recession since people will have less purchasing power. But with precious metals, regardless of the state of the economy, there’ll always be a buyer who’d want to acquire such assets. Also, the prices of precious metals aren’t affected by the prevailing economic condition; therefore, you can sell them at the right price.
Downsides Of Investing In Precious Metals
Just like any other investment, precious metals also have downsides that may affect investors if not properly taken into consideration. Here’s a list of some factors that may affect your investment in precious metals:
Theft And Loss
When storing precious metals in their physical form, they’re always susceptible to theft. After you buy them, there’s the risk of the metals being stolen during transit or even when you already have them in storage. Moreover, if you’re holding certificates, you might lose them for one reason or another. And because they’re proof of ownership, without them, you’ll face many challenges until you can get access to the precious metals you purchased.
Extra Costs
Owning precious metals will mean that you have to deal with some extra costs at various points until you can finally sell them. After purchasing, you must insure your commodities against theft and other risks. Also, transporting the metals will require you to pay more if you want the best services. Finally, if you’re storing your metals with the help of a company, then you’ll be asked to pay a monthly or annual storage fee.
Capital Gains Tax
Precious metals are considered collectibles, therefore they’re subject to capital gains tax. When you sell your precious metal investments in the future, the capital you gain (profit) will be subject to taxation. This will reduce the total amount of money that you get from your investments.
No Interest Earned
Another disadvantage of investing in precious metals is that you don’t benefit from interest rates like when you’re buying shares in a company or saving money in a bank. The only way to increase the value of your investments is to wait until the prices of the precious metals go higher than the prices you purchased them at.
Factors To Consider Before Investing
After learning the reasons you should invest and the pitfalls of investing in precious metals, there are some critical factors you need to take into consideration prior to investing. These will help you determine whether you’re truly ready to invest.
Method Of Investment
As previously discussed, there are several forms of precious metal investments. If you want to use your metals as security, it’s best to get them in physical form. If you don’t have secure storage, then going for either certificates or securities like ETFs would be better.
Also, remember that with ETFs and similar options, you can’t exchange them for physical precious metals. Therefore, it’s essential to know what method will work for you.
Storage Of Your Metals
While precious metals provide a hedge against inflation and recession risks, they are prone to theft. So before purchasing them in physical form, you should consider where you’re going to store them. If you already have a reliable facility in mind, that’s a big advantage for you. However, if you’re still choosing among several companies, compare their storage fees to ensure that you get the best deal.
The Extra Costs You Will Pay
In any investment, the goal is always to cut down on costs and maximize profits. The same rule should be applied when investing in precious metals. You should factor in everything from transportation costs and insurance to storage expenses. In doing so, you can have a good idea of the overall amount you’ll spend on acquiring and keeping the metals.
You might find out that you’ll pay more money in total than the current market value of the precious metal. It’s up to you to decide if this particular investment is worth it.
The Type Of Metal To Invest In
The most common types of metals to invest in globally are gold, silver, platinum, and palladium. Gold and silver are the most popular ones, while platinum and palladium are rare and rather volatile. That’s why not all of these metals will provide the same return or undergo the same fluctuation after some time.
You need to study the price charts of all the metals you want to invest in to see if their value changes relative to each other or independently. Also, the price differences will tell you how many units of each of metal you can get with a certain amount. Being aware of such information will help you know which metals would be suitable for you.
Conclusion
Precious metals have been and still is a good investment option. There are indeed a few downsides to them such as taxation and the risk of theft. But when you look at the benefits they provide, you’ll know that they’re a type of investment you won’t want to miss out on.
Investing in precious metals ensures that you’re protected against inflation, you get to diversify your investment portfolio, and you acquire assets with good liquidity. But before investing, see to it that you know where and for how long you’ll store your precious metals if you’ll get them in physical form as well as how much you can invest in them. This will help you make informed decisions and benefit more from such assets.
Founder Dinis Guarda
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