In the world of investing, there are virtually limitless possibilities when it comes to investing your money. Some of the more standard investments are stocks and bonds. However, given the expanding trading market, you can invest in mutual funds, currency and exchange transfer funds (ETF).
Once again, the list of investments doesn’t end there. There are commodities such as oil, wheat and orange juice to invest in. You can invest in futures and you can even invest in options that allow you to predict the value of a particular commodity. While all of these methods of investment are available to you on the trading market, few commodities are as popular as investing in precious metals.
Just like with other tradable commodities, there are a variety of different options you have when trading precious metals. The most widely known precious metal to invest in is gold, followed closely by silver. There are, however, other precious metals to invest in and two of note are platinum as well as palladium.
Why Precious Metals
Since trading began, even before organized trading markets, precious metals such as gold and silver were commonly traded. In some nations as well as civilizations, gold was the main form of currency. While gold is no longer a main source of the world’s money, it is still a popular commodity to be traded and it’s a vital component of an investment portfolio.
Hedging Against Uncertainty
Trading markets are volatile and a minor change in the value of a country’s currency can greatly affect the value of your investment portfolio as well as your personal net worth. Since gold and silver are less affected by economic turmoil, investing in these precious metals allows you to negate a great deal of your financial losses when trading in commodities that has a value based on paper money.
The Value of Precious Metals
You don’t have to be a market expert to know that over the past five years gold has increased in value significantly. For example, according to Monex.com, the spot price of gold today is around $1675.60 per ounce. Only five years ago, the spot price for gold was slightly under $1000 an ounce. In fact, today’s spot price for an ounce of gold is slightly off its highs of last year where the value of gold was teetering close to the $2000 per ounce level.
Perhaps one of the most important strategies you can have for investing is making sure that you diversify your portfolio. This can include various commodities, real estate investments, traditional savings and the inclusion of precious metals. Regardless of whether you’re holding them as a hedge or simply amassing gold for long investment positions, holding precious metals in your investment portfolio is crucial to properly diversifying.
When investing in precious metals as a hedge, for their value or for diversification, it’s important to know what types of metals are available. It’s also important to understand the factors in their value and what will contribute to increased value of these precious metals in the future.
Gold is perhaps the most popular precious metal to invest in. It’s also typically the most expensive precious metal. With spot prices close to $1700 per ounce, many people feel that gold can achieve $2000 per ounce within a short period of time.
Gold is a popular metal for jewelry, but it is also a widely used metal in high tech components. It is stable, offers excellent conductibility and is perfectly suited for heat shielding. As technological advances continue, the need for gold will grow as well.
Of the precious metals, silver may very well have the most upside. This may be difficult to understand, as it is one of the cheapest of the precious metals available today. The most recent spot price for silver puts it at $31.84 per ounce according to Coin Trackers. While this is much cheaper than the price of gold per ounce, its true value goes beyond its current per ounce price.
Silver stockpiles are dwindling yet the demand for silver is increasing in both the jewelry industry and in technological fields. Silver is used in a variety of different electrical components and technical devices. Its demand is increasing while its stockpiles are shrinking. What this means is that there is a greater demand for silver, much more demand than current stockpiles can handle. This means increased value. Whether you’re sitting on silver coins or silver bullion, it would be wise to hang on to this metal and increase your exposure.
Throughout the years, platinum was considered a more valuable precious metal than even gold. While that may be a matter of science or chemistry, gold has outpaced other precious metals. However, much like silver, platinum is poised for a rebound in value thanks to increased demand. In fact, current spot prices for platinum put it at $1683 per ounce. Compare that with spot values of gold, and platinum actually has a higher level of value, if only by a mere eight dollars.
While platinum is a popular item in certain types of jewelry, its main purpose is for use in various types of medical equipment, computers and it is also a popular precious metal found in a number of automotive parts. Once again, the demand for this product as well as the relatively low levels of stockpile means platinum values are on the rise as well.
This precious metal is much different than the other three, as it is not typically used for any type of decorative jewelry. Palladium has various uses and a wide variety of different industries. Palladium is a popular metal used in photo processing, water purification and the purifying of oil as well as gas.
This also makes it a very high demand precious metal and its current spot price is indicative of that. The current price for an ounce of Palladium sits at $755.
Investing in Precious Metals
Fortunately, with as diversified as the trading industry has become, there are multiple entry points in which an investor can begin buying or selling precious metals. Here are a few of the most common methods of precious metal investing.
Many governments issue gold and silver coins. Canada has the Maple Leaf coin, America has the Eagle, South Africa has the Krugerrand, Britain has the sovereign as well as the Vienna Philharmonic, Australia has the Koala and even Mexico offers a 50 pesos gold coin. In addition, many of these governments issue platinum coins as well.
These coins have a specific level of purity, which allows them to be tradable investments on the precious metal market. Whether it’s gold, silver or platinum, an investor can physically own these coins and they can be of value well beyond their intrinsic government issued value and can have value as it relates to the spot prices of gold, silver and platinum.
Collectible coins may also have certain value; however, these coins aren’t often used in typical precious metal trading. Purity levels of the precious metals used in these coins, especially in older coins, may not meet the current standards for numismatics to be bought and sold on the precious metal market. However, because history or nostalgia, the collectible precious metal coins may have a value far beyond the actual value of the gold or other precious metal contained in the coin.
This form of precious metal investing typically comes in the form of bars of gold, silver or even platinum. Manufacturers of bullion are names such as Johnson Matthey, Wall Street Mint, Engelhard, Credit Suisse and PAMP, just to mention a few. In order for bullion to be officially traded, it also has to meet a purity level of .995. By purchasing bullion from a seller who buys from these reputable names, you can be assured that the gold, silver or platinum is of impeccable purity and viable for buying and selling.
Perhaps the only downside to purchasing bullion is that this is the type of investment that will require a great deal of capital. Smaller gold bars such as the 1-ounce Swiss PAMP may only sell slightly over spot price. If you’re looking for something more significant a 1-kilo Credit Suisse bar will cost around $54,000 at today’s current prices.
Alternative Methods of Precious Metal Investing
If you don’t have the type of money that it takes to invest in numismatics or bullion or you don’t want the hassle of actually possessing gold and figuring out the logistics involved in its safekeeping, there are other avenues that are much easier when it comes to investing in precious metals. One very popular method is through a gold backed individual retirement accounts (IRA).
IRAs often establish their value as well as their return on investment through a combination of different stocks and bonds. A gold backed IRA allows the investor to use their IRA funds to invest in gold. What is unique about this investment is that while your gold is the basis for your IRA investment and your returns, you are prohibited from physically owning the gold. The gold will be kept secure by a third-party vendor. Once you have reached the age where the IRA matures, then the gold will be returned to you and you can do as you wish with the gold that you’ve accumulated in your IRA.
Another investment that is similar to a gold backed IRA are exchange transfer funds (EFT), which allow you to hold bullion whether it’s gold, platinum or silver. Once again, as with the IRAs, the value of the ETFs is tied to the value of the bullion you have invested in.
Mutual funds are another way to invest in precious metals in a much more indirect manner. While mutual funds will not allow you to hold precious metals, you can purchase gold related stocks. Either through a precious metals provider or a precious metal mining company, your mutual funds can be backed by companies involved in the precious metal industry.