Investing in Precious Metals

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A VERSATILE ASSET CLASS

This asset class has appeal as a safe haven, as price appreciation generally occurs when global equity markets encounter volatility

Overview

Precious metals are among the rarest and most valuable elements in the world, and have a long history as investable assets, stores of value, and even as the basis of currency systems. Gold is perhaps the best-known precious metal, though silver, platinum, and palladium also fall under this umbrella.

Precious metals are popular investment destinations for both long-term buy-and-holders and short-term traders. This asset class has appeal as a safe haven, as price appreciation generally occurs when global equity markets encounter volatility. Gold and silver are also used as hedges against both inflation and the U.S. dollar.

Precious metals are used both as stores of value and in manufacturing applications; the degree to which demand from the manufacturing sector exists depends on the commodity (gold has very few industrial applications, while platinum is a major input in the automotive industry). 

There are hundreds of billions of dollars invested in precious metals, with the majority of that total attributable to gold. Options for achieving exposure to precious metals are numerous, and include exchange-traded products, futures contracts, and even physical storage

Gold

How to Invest in Gold

Gold is one of history’s most famous and important metals and has been the basis for monetary systems for thousands of years.

Although no country today still uses the gold standard, the demand for the product as an alternative to fiat money has picked up in recent years thanks to the impressive stability of the precious metal.

Gold has appeal as an investable asset for several reasons.

First, if investors continue to lose faith in the fiat currencies and the U.S. dollar in particular, demand for gold could rise.

Gold is also seen as a potential hedge against inflation allowing investors to protect at least part of their portfolio from this phenomenon.

If any of this fails to take place, investors can still take solace in the fact that gold is still in heavy demand across the globe for its use in jewelry, a function for the metal that seems unlikely to disappear in the near future.

Investors seeking exposure to gold have a multitude of options.

In addition to buying futures contracts on gold or purchasing and holding the physical metal in the form of coins or bars, there are a number of ETF and equity options available as well.

Investors can purchase stocks or ETFs of companies that mine the metal or ones that search for new deposits of gold. Lastly, investors also have the option of buying gold ETFs either ones that track the futures for the yellow metal or those that physically hold the product in secure vaults.

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How to Buy Physical Gold

Some investors seeking exposure to gold prefer to own physical gold bullion. This strategy ensures that the value of the assets held will move in unison with spot gold pricing, removing the nuances of futures contracts. Because gold has a high value-to-weight ratio, it is relatively cheap to store a material amount of gold bullion. However, the value of gold also means that investors must make arrangements for secure storage.

There are a number of companies that sell gold coins and gold bullion. Investors should understand that there may be a premium to purchase gold coins, and should determine if any bullion purchased meets quality standards.

Silver

How to Invest in Silver

 

Silver has had a rich history as one of the world’s most important metals for monetary exchange and for ornamentation purposes. Although no country today uses silver in a precious metal backed currency, demand for the product has picked up thanks to declining confidence in fiat currencies and the metal\’s relatively cheap price when compared to others in the precious metal group. Furthermore, unlike gold, silver has a variety of industrial uses that ensures that demand for the product will remain high should currencies like the dollar remain stable.

Silver has appeal as an investable asset for several reasons. First, if investors continue to lose faith in the fiat currencies and the U.S. dollar in particular, demand for silver could rise.

This is especially true in emerging markets where other precious metals remain out of reach but silver is still a relatively inexpensive option on a per ounce price basis. Silver is also seen as a potential hedge against inflation allowing investors to protect at least part of their portfolio from this phenomenon.

Lastly, since silver has a number of industrial uses, investors can consider silver a play on increased manufacturing or industrial activity as the product is needed in a number of applications ranging from batteries and electronics to medical and photographic materials.

Investors seeking exposure to silver have a multitude of options. In addition to buying futures contracts on silver or purchasing and holding the physical metal in the form of coins or bars, there are a number of ETF and equity options available as well. Investors can purchase stocks or ETFs of companies that mine the metal. Investors also have the option of buying silver ETFs, either ones that track the futures for the metal or those that physically hold the product in secure vaults.

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How to Buy Physical Silver

Though silver is far cheaper than gold, the precious metal maintains a sufficiently high value-to-weight ratio to make achieving exposure through physical possession practical. There are a number of ways to purchase silver bars or silver coins, including web-based bullion dealers, trade shows, and others.

It is also possible for investors to gain physical exposure to silver through certain exchange-traded funds. The underlying holdings of products such as SLV and SIVR are silver bars stored in secure vaults. As such, these products will generally move in unison with spot silver prices, allowing investors to avoid any potentially adverse impact of futures-based strategies.

Platinum

How to Invest in Platinum

 

Platinum, one of the most expensive exchange-traded metals on the market has been gaining in popularity in recent years thanks to its wide variety of uses.

Platinum is a very popular metal for use in autocatalysts which are products that help carmakers clamp down on harmful emissions and are required in most countries for all cars.

While these catalysts take up the majority of platinum‘s demand the product is also heavily used in electronics and increasingly, jewelry as well. This use in jewelry likely stems from the metal’s prestige as well as its brilliant white finish that makes it a great compliment to precious stones or diamonds.

Platinum has appeal as an investable asset for several reasons.

First, if investors continue to lose faith in the fiat currencies and the U.S. dollar in particular, demand for platinum could rise as an alternative, although less so than the other precious metals since platinum is so scarce.

Platinum also has appeal as an inflation hedge or as a way to play increasing demand for the car industry since so much of the product goes towards autocatalysts. Thanks to this heavy industrial demand, prices of the metal are often heavily correlated to automobile production and usage making the metal increasingly dependent on emerging markets for higher prices.

Furthermore, since the production of the metal is so heavily concentrated in emerging nations, the product is often prone to price spikes which could make the product a great options for traders in the precious metals space.

Investors seeking exposure to platinum have a multitude of options.

In addition to buying futures contracts on platinum or purchasing and holding the physical metal in the form of coins or bars, there are a number of ETF and equity options available as well. Investors can purchase stocks or ETFs of companies that mine the metal as the primary way to achieve equity exposure.

Lastly, investors also have the option of buying platinum ETFs, either ones that track the futures for the metal or those that physically hold the product in secure vaults. Thanks to the metal\’s extremely high value to density ratio, holding platinum is a very cheap way to achieve exposure to the precious metal.

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How to Buy Physical Platinum

Some investors seeking exposure to platinum prefer to own physical coins or bars instead.

This strategy ensures that the value of the assets held will move in unison with spot prices, removing the nuances of futures contracts. Because platinum has a very high value-to-density ratio, it is relatively cheap to store a material amount of platinum bullion.

However, the value of platinum also means that investors must make arrangements for secure storage which can increase costs.

There are a number of companies that sell platinum coins and platinum bullion. Investors should understand that there may be a premium to purchase platinum coins, and should determine if any bullion purchased meets quality and purity standards.