Investing in Precious Metals

Investing in Precious Metals


Humanity has loved gold and silver since we first learned how to get them out of their ores. Who wouldn’t? After all, they’re rare, shiny and you can bash them into all sorts of shapes…

On a serious note, precious metals are also an investor’s dream because you can start off small if necessary and they have enough volatility to make for an exciting (and hopefully lucrative) ride. You can also take your pick of more than just gold and silver. There’s platinum, palladium, rhodium and even humble copper. Let’s start here with a look at gold and silver.

Gold standard

Gold is the first precious metal you think of and it’s by far the most popular, both in jewelery, industry and investing. It’s best known for jewelry and dentistry, as well as for its use in currency.

Gold’s value fluctuates almost by the minute and these rises and falls are driven more by feelings than by market forces. Most countries have a decent stock of gold in the national cellar, as do most metals investors. It’s more to do with who feels like selling some off to buy something else than a sudden shortage. If they manage to sell quite a bit, then demand rises and prices go up. It’s a merry-go-round that’s easy to catch onto and enjoy.

The desire for gold rises in certain circumstances, though:

  • when there’s systemic financial worry – if people are worried about the stability of banks and the economy, they tend to fall back on gold;
  • when there’s high inflation and stocks aren’t doing so great, people return to gold as it holds its value, and
  • if there’s political upheaval and instability people use gold to trade in exchange for food, transport and shelter.
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Silver swings

The value of silver is much more volatile than that of gold, although the actual value of silver makes the ups and downs a little less thrilling. Silver’s fluctuations are driven largely by its industrial uses; it follows gold roughly when it comes to storing and trading, but any new innovations or new uses for this metal will send it up. Conversely, if silver is replaced by a new tech (film photography being superseded by digital is a prime example), then its price will fall a bit.

At the moment, the demand for techie devices and medical equipment in the emerging economies is pushing silver up a bit. A good rule of thumb if you’re looking at silver is to watch industry and tech rather than fashion.

Getting started

If you’ve decided that precious metals are for you, then there are lots of vehicles to choose from.

Commodity ETFs

These exchange traded funds are suitable for gold, silver and other precious metals. They’re an easy, agile and liquid way to buy and sell.

Stocks and mutual funds

Shares of mines are leveraged to make the most of movement in metals prices and if you’re not too sure how it all works just yet, they’re best avoided.

Futures and options

These offer a lot of liquidity for those braver souls who want to bet on precious metals movement. This is where the biggest wins and losses are made.

Gold and silver bullion

If you’re able to store your metals safely then bullion is a great investment, especially if you’re planning to keep it for a long time.

Certificates

You invest in gold or silver and the metals are stored in a safe vault. Your certificate proves you own it, but if there’s serious upheaval or a bank meltdown, no-one will want a piece of paper.

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