How to Invest in Precious Metals: A Detailed Guide

Some of the richest, most successful investors in the world say you should have at least 5% of your investment portfolio in precious metals.

Even in the digital age, where cryptocurrencies seemingly reign supreme, celebrity investor Kevin O’Leary, famous as one of Shark Tank’s moneymakers, says that gold is a quintessential hedge against inflation.

How to invest in precious metals isn’t a mystery. Gold, platinum, silver, and futures like ETF and ETN products are out there for purchase. And money managers contend that as much as 10% of your portfolio should consist of some sort of precious metal investment.

And you can horde the metal in your own private safe, or you can have a company hold it for you.

Of course, there are some drawbacks to investing in gold and other precious metals that you should be aware of. Chief among them is that investing in precious metals has certain costs associated with it that other traditional stocks and bond investments don’t.

In the following guide, we’ll look at how to invest in precious metals and some ways to make gold and the like work for you.

The Popularity of Gold

Gold has been used as currency for at least 2,000 years—the first coins originating in the 6th Century in Western Turkey.

These coins from the ancient country of Lydia were made from a gold and silver alloy called electrum and were stamped with the heads of bulls and other animals.

The Romans refined the process and established 22 carats, or 22 parts gold to other metals in the coins, as a purity base. As we all know, that has been replaced by the ratio of 24.

The benefit of gold is that it stands out for its lustrous color. It won’t rust or corrode, and it’s both heavier and more malleable than other common elements.

During the Age of Exploration, gold coins became the top form of currency worldwide, with the English Noble and the Spanish Doubloon as two famous examples.

And of course, gold, silver, and platinum are famous for a base for jewelry because of their obvious value and the easy way craftsmen and artisans can fashion the metal into almost any shape.

How to Invest in Precious Metals

Today, gold, silver, and platinum are some of the most popular commodities investors turn to. Unlike soybeans, coffee, and citrus crops, buyers of precious metals can actually store precious metals in their homes if they so desire.

However, the supply of gold is finite, and there’s a lot more of it floating around in people’s vaults than there is being mined. So, gold and other precious metals’ price rises and falls by how often holders of the precious metal decide to buy and sell.

Unlike crops that can be affected by weather or the demand from derivatives created through manufacturing, gold does no work for you as an investor.

The precious metals market trades 24 hours a day, 7 days a week, and is completely a creature of supply and demand.

In other words, you are betting that people deem the future more or less valuable in the future rather than the metal producing more of a product of greater value. Gold and silver are inert, so the metals don’t “produce” anything.

Inflation or unstable political and financial situations are some of the underlying factors that drive up the price of gold. In turn, you’ll find that a rush on gold will follow a currency devaluation or a political crisis involving leadership turnover, either through violence or otherwise.

So when you invest in precious metals, you can have the gold or silver bullion, bars, or coins shipped directly to your door, or you can own a specified amount held at a holding company.

However, these companies will charge you for their security and shipping costs. This will add to the price of your gold investment.

Popular Forms of Investment

The Dollar-Cost Average is a popular way for you to invest in precious metals. In this form of investing, a certain amount of your investment pool always purchases precious metals. You buy straight through the metal’s ups and downs. To this way of thinking, you are betting that at the end of the year, the gold and silver you have purchased will have been worth more than when you started buying.

Investors have traditionally won on this type of bet, and there are many reputable dealers out there. Coin distributors like American Precious Metals are well-known for supplying these types of arrangements, for example.

Another popular method is an IRA. This retirement account stores your precious metal in a secure facility. This is for investors where the sheer amount of metal purchased is impractical to store and secure in a private home.

ETFs and ETNs

An ETF is an Exchange Traded Fund. That means it’s a mutual fund traded on a major stock index.

An ETN is an Exchange Traded Note. This is an unsecured note issued by an underwriter like a bank. It is unsecured, so if the note’s underwriter goes belly-up, the value of the note does too.

Do your research on ETNs. You want to make sure that the underwriter is sable before investing. For that reason, people tend to migrate towards ETFs rather than ETNs.

With that in mind, it’s no surprise that precious metal ETFs are some of the fastest-growing commodity funds out there because of the hard value of the precious metals related to the funds.

Precious Metal Cryptocurrencies

In an Old World meets New World twist, these blockchain investments are some of the newest ways to invest in precious metals. These cryptocurrencies are traded electronically like other cryptos but are backed by a finite amount of precious metals held in a vault somewhere.

While some see precious metal cryptocurrencies as a hedge against market volatility, others see them as anachronistic and antithetical to the spirit of the Bitcoin revolution.

Are Precious Metals Right for You?

While gold, silver, and platinum are generally considered a good bet, how to invest in precious metals can be tricky. Some investors won’t touch a precious metal-stocked portfolio because of its lack of cash flow.

Also, precious metal companies are historically bad bets.

However, if you are careful in buying in the dips and selling at the peaks, you can make a great deal of money in precious metals. And this investment will hold its value no matter what happens in the world.

Did you find this article useful? Search this website for more on precious metals.