Your financial decisions shape your future, so let’s discover the allure of gold, platinum, silver, and palladium as investment options. We will unveil the causes and advantages of investing in precious metals, as well as the complexities, benefits, and potential pitfalls of investing in these rare commodities. Most financial advisors recommend dedicating 5% to 10% of your portfolio to precious metals. Let’s observe.
Are Precious Metals a Good Investment?
Precious metals are rare commodities and have high economic value. The most common types of metals you invest in include gold, platinum, and silver, while other types include palladium, iridium, rhodium, osmium, and ruthenium. Precious metals have unique inflationary protection because they carry no credit risk, have intrinsic value, and cannot be inflated (because you can’t print more like money).
These metals are a hedge against inflation as their prices tend to rise above or at the inflation rate. Plus, they offer fairly liquid investments that you can quickly sell and convert into cash. They provide portfolio diversification, as they have a negative or low correlation to other assets like bonds and stocks, helping reduce volatility and risk in your portfolio. Precious materials are also tangible, with high intrinsic value outside of investment purposes, such as for industrial uses or jewelry.
What Precious Metals Are Best to Invest in?
Let’s discuss the various precious metals available for investment, including gold, silver, platinum, and palladium.
Gold is one of the most common precious metals found in investment portfolios. It’s known for its malleability, durability, no risk of corrosion or rust, and ability to conduct electricity and heat. Investors consider gold a safe store of value during political instability or when investors perceive banks and money as unstable.
It is also common for individuals to put all their savings into gold during political crises or wars until they can trade it for shelter, food, or safe passage out of the country. Gold is also a preferable investment in times of inflation when rates of return (ROR) in real estate, bonds, or equity are negative, as gold will maintain its value. You can invest in gold in various ways:
- Gold bullions: This is a near-pure or pure certified form of gold that includes bars, coins, and more. Bullions offer one of the best-known ways of direct gold ownership. Their heavy size can make them illiquid and costly, but bullions held as smaller coins and bars are more liquid and common.
- Gold coins: Gold coins are minted in smaller sizes, making them a convenient investment. Prices are also conveniently available in global financial publications, and you can easily find reputable dealers. Investors buy coins from private dealers at a 1-5% premium above their underlying gold value, but recently, the premium has risen to 10%. However, you may face storage and insurance costs.
- Gold EFTs: Gold-based exchange-traded funds represent a fixed amount of gold and can be sold or purchased like stocks in any individual retirement account (IRA) or brokerage account.
- Mutual funds: Advantages of gold-only mutual funds include diversification among different companies, low cost, ease of ownership in an IRA or brokerage account, and low minimum investment requirement.
- Gold futures: Futures are contracts to sell or buy gold on a particular future date. Future contracts represent a predetermined gold amount and are standardized. Commissions are low, and margin requirements are below traditional equity investments.
- Gold mining companies: Gold mining and refining companies profit from rising gold prices, and Investing in such companies carries low risk.
- Gold jewelry: 49% of global gold production is used to make jewelry, and buying jewelry at retail prices has a substantial markup of up to 300% or more over the underlying value of the gold
Platinum is a rarer metal, so it can often fetch a higher price than gold during political and market stability periods. Head over to Oxford Gold Group to understand the difference between platinum and gold and why it is cheaper to make more informed decisions.
You must consider current market conditions, economic indicators, geopolitical risks, and supply and demand dynamics before investing in platinum. Make sure to read up and ask about the fees associated with storing, selling, or buying platinum products, as you can face management, storage, brokerage, and insurance costs. Taxes may vary depending on investment type.
Silver has more volatile price fluctuations than gold because of its role as an industrial metal and a store of value. Ways to invest in it include:
- Bullions or coins: You can purchase theSE through pawn shops or local or online dealers. It’s easy to overpay for silver, so research to ensure you’re getting the right price.
- Silver futures: Futures are contracts or agreements for the delivery of precious metal at an agreed-upon price in the future. These are risky and are more suitable for seasoned traders.
- ETFs that own silver: ETFs allow you to sell silver at market price and are highly liquid.
- Silver mining stocks: Do extensive research on the company beforehand.
- ETFs that own silver miners: If you don’t want to research and analyze miners, this gives you diversified exposure to miners and lower risk compared to owning one or two individual mining stocks.
Palladium is used for manufacturing processes, mainly industrial and electronic products. Its use extends to chemical applications, groundwater treatment, jewelry, dentistry, and medicine.
This metal draws investors’ attention because other materials cannot be easily substituted for it. Palladium is 30 times rarer than gold. You can invest in it through palladium-focused exchange-traded funds, purchasing physical bullion, or purchasing the stocks of companies involved in this metal’s mining, sale, and business.
Considerations Before Investing in Precious Metals
A major disadvantage of investing in precious metals is the costs of insuring and storing them. The IRS taxes their sale at a profit of 28% higher than capital gains tax rates. There is potential for theft, and you can’t generate income from them. Other risks include price volatility due to federal reserve policy, economic changes, mining supply, investor demand, and inflation.
Whether it’s the timeless allure of gold, the rarity of platinum, the volatility of silver, or the industrial importance of palladium draws you, understanding the nuances is critical. Acknowledge the costs, risks, and potential rewards associated with precious metal investments, consult financial advisors, and practice caution as you venture into the world of investing in precious metals.