Guide to Precious Metals Investing

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Precious metals are metals that are usually highly sought after because of their practical and economic uses and limited in supply, this makes them very valuable and thus precious. Not every usable metal can be classified as a precious metal for example iron is highly sought after and has a lot of practical uses but t is not a precious metal mainly because its supply is not as limited as some well-known precious metals. 

Gold, silver, platinum, and copper are the more well-known precious metals. Gold and silver have been historically used as currency and jewellery and in recent years their usage in electrical components has increased their demand, moreover, gold and silver have this factor of cultural demand, certain South Asian cultures emphasize on gold and silver jewellery for weddings and other events.

Platinum and Palladium are rarer than gold and silver and highly sought after for their industrial uses, platinum is also referred to as white gold and thus it is also used in highly expensive jewellery.

Copper has similar properties; it is highly sought after due to its extensive industrial usage and it is more readily available than the other precious metals but the process of its extraction and purification is expensive and this makes copper a precious metal because of the cost attached with its extraction and purification. Its excellent conductive properties make it ideal to be used in making heavy-duty electrical wires and other equipment. 

Thus, it can be seen that the economic and practical usage of precious metals, makes them precious. Because these metals are precious, it means that they can be used for investment purposes but it depends on the risk appetite of the investor which means that if you as an investor are risk-averse for example you may be looking to find ways to invest your savings for your retirement and so you may not want to take a lot of risk with your savings in this case you will want to invest in low-risk options whereas if you are more of a risk seeker, for example, you may be looking for high returns in the short run then you may have a greater risk appetite and thus be willing to invest in high-risk investment options. 

Your decision to invest in precious metals will depend on your risk appetite, once you have figured out how much risk you can handle then you can start looking for investment options into precious metals.

Bullion

If you have a very low-risk profile and are not willing to virtually no risk at all then you may want to invest in bullion, coins or tangible precious metals. You can easily get gold and silver in the form of bullion, coins or jewellery. Platinum should also be available in the form of bars or coins but you may have to search for shops that sell platinum and copper in bullion form. You can either visit a shop or look for online stores, generally, online stores offer a greater variety in terms of metal purity and weight. If you are looking to buy precious metals online then take your time to carry out due diligence to make sure that you purchase from certified traders. If you want to go the extra step you can also put gold in a tax-advantaged Roth IRA

If you invest in physical or tangible precious metals in the form of bullion or coin then you are essentially safeguarding your savings and preventing them from loss of value over time. This sort of investment will not give you regular returns but it may increase your savings through capital appreciation if the value of the underlying commodity increases over time. If the value doesn’t increase then at the very least it will act as insurance for your wealth. 

Shares

If your risk threshold is a bit higher and you are willing to take some risks then you may want to invest in shares of precious metal mining companies. Needless to say, that this form of investment means that you will not be seeing or trading in precious metals instead your investment will be in the shares of mining companies that mine and deal with precious metals. The performance of the company and the value of underlying precious metals will determine the share price and thus your investment will be exposed to the usual risks that are associated with share investment. Due to increased risk, you will be able to get periodic returns in the form of dividends and capital appreciation of share value. 

Exchange Traded Funds

If your risk appetite is even greater and you are looking to make short term profits or ways to hedge risk then you may consider investing in exchange traded funds. Exchange traded funds are companies that track an underlying index. An ETF is basically like a basket of securities that trade on the stock exchange, similar to a stock. The price of ETFs fluctuates throughout the day just like stocks and these price movements offer investors the opportunity to make a profit on the margins. ETF exists for all precious metals, it must, however, be kept in mind that tangible precious metals do not change hands, the securities backed by precious metals change hands. 

Futures and Options

If you are looking to make short term profits on precious metals at a higher risk margin then you may consider investing in precious metals futures of options, they allow investors to make the greatest profits or losses out of all the investment options available for precious metals. Futures are contracts to buy or sell a fixed quantity of precious metals at a future date on the price agreed upon today. Thus, the investors have to lock into the exercise price and this means that upon maturity the investor can either make a profit or loss depending on the situation.

Options, provide greater flexibility as they are contracts that give the investor an option but not the obligation to carry out the contract. Thus, if the spot rate on the date of maturity is favourable, the investor may ignore the option and allow it to lapse to take advantage of the favourable spot rate and if it is unfavourable then the option may be exercised.