How to Invest in Precious Metals

Опубликовал Admin
19-10-2016, 06:40
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People in the financial world have heard the same refrain many times: from big financial institutions to small trading desks, forward-thinking traders are buying into precious metals markets, equities, and financial products. Fear of currency value fluctuation drives much of this investment, in combination with other perceived benefits. This article offers some guidelines to help individuals invest in ways that will minimize risk and maximize profit.

Researching the Market

  1. Understand the benefits. Investing in precious metals can be a good way to shield your investment portfolio from the effects of inflation. Monetary policy employed to combat recent recessions has often involved the inflation of currencies. Lack of faith in the dollar has resulted in the devaluation of cash assets and the rise of commodity prices.
  2. Understand the disadvantages. Price volatility is always a concern for precious metals investors. The discovery and sale of large precious metal reserves can increase the supply overnight, leading to sharp drops in price. Additionally, if you invest in physical metal such as gold coins or bullion, you need to protect them in a bank vault or safe.
  3. Do your research. Although gold is the best-known precious metal, there are a few other metals that are often used for investment.
    • Gold is a globally recognized symbol of wealth. Gold was commonly used as currency prior to the development of paper money and state currencies. Currently gold is crucial to the electronics industry. It is used in many components due to its properties of electrical conduction, corrosion resistance, and chemical stability.
    • Silver is commonly thought of as gold's more affordable cousin. Silver is valuable to the electronics industry because it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal.
    • Platinum is often part of medical equipment, automotive parts, and computers.
    • Palladium is key to the production of catalytic converters because of its ability to withstand extreme temperatures and oxidation. It is also used in a variety of other industrial applications such as water purification and the refining of oil and natural gas.

Evaluating and Choosing Investment Methods

  1. Employ a physical broker. A broker will provide you with access to the various investment vehicles that you can use to invest in precious metals. Brokers have the knowledge and experience to help you make better investments.
  2. Get an online brokerage account. Such an account will allow you to access precious metals markets without having to pay an agent to execute trades for you. This is almost always cheaper than using a personal broker but forfeits the advice and expertise of an experienced agent.
  3. Evaluate mining company stocks. Investing in mining companies is a great way to start investing in precious metals. Invest in companies with a strong track record of earnings and those with whom you feel comfortable. Like all stock investments, the performance of the company and human error can affect the price, in addition to the general demand for the product.
  4. Evaluate precious metals ETFs and ETNs. Exchange traded funds and exchange traded notes are active funds that are traded throughout the market day. They are similar to stocks, but they bundle equities for specific yield and risk ratios. Some ETFs are specifically set up to allow investors to "short" precious metals, meaning that the ETF's value goes up when the value of precious metals declines. This can be a good way to make money in markets that are in a downturn.
  5. Assess other precious metals funds. Some mutual funds (including certain index funds) invest in precious metals. These funds own a variety of stocks and/or bonds related to precious metals. Instead of being traded throughout the day like ETFs, mutual funds trade only at the end of the day. The wide array of precious metals funds means there's something appropriate for just about every investor who wants to get involved.
  6. Compare raw value versus numismatic value. One critical aspect of investing in gold, silver, or other precious metals is whether the investor wants to invest in raw materials or prefers other items with intrinsic value, like collectibles. Some advocates for investing in certified coins argue that their value is protected from market fluctuations that affect raw gold, because there is no supply for these out-of-print coins. This provides buoyancy to a gold portfolio while the market is correcting for overvaluation of gold in general.
  7. Assess raw metals opportunities. Some of the most basic precious metals investments are offered in major national exchanges or in the global Forex market. The South African Krugerrand is an example of a coin that holds raw value as gold bullion, where its value (measured in troy ounces) will be equivalent to the value of raw gold. Other coins and collectibles may have their own numismatic values and trading risks associated with those values.

Monitoring Your Investment

  1. Track your investments. After buying basic precious metals, gold or silver futures, funds like ETFs and ETNs, mining stock or any other metals-based asset, tracking these investments is important.
    • Track with software tools that analyze changes in the value of your investments.
    • Periodically check on your long-term holdings within your online brokerage account or with the help of your broker.
    • As your holdings grow, you may want to consider hiring a financial manager to oversee your investments and make adjustments in response to market conditions.
  2. Decide on a profit-taking method. There are several ways to profit when your investments increase in value.
    • Long-term strategies can include holding on to your gold, silver or other metals for a very long time. This is often done in hopes that prices will spiral up into the stratosphere, creating vast wealth.
    • Short-term strategies include options for those who want to benefit regularly from increases in equity values. This would involve shorter periods in which holdings that have appreciated are sold (perhaps on a yearly basis), producing more consistent and modest earnings.
  3. Reinvest in new opportunities. Based on your newly acquired experience at investing in precious metals, use a portion of your gains to reinvest in rising metals.
    • Drawing on past observations of market behavior and investment performance should guide you in deciding where to invest in the future.

Tips

  • Keep cash on hand to maintain liquidity and enable yourself to seize new investing opportunities.
  • Begin your precious metals investment campaign with low-risk options such as stock in major mining companies.

Warnings

  • Be wary of bloggers and video makers who promote physical metal ownership but try to sell you speculative mining shares.
  • Do not invest in gold or silver through certificates, because your investments can be sold in the event the bullion bank fails. This could mean you'd receive less in compensation than what you originally paid for your metal.
  • Avoid numismatic investments unless you have expert knowledge. Dealers of collectibles have been known to overstate the value of these goods, leading buyers to pay far more than they are worth.
  • Do not fall for "buy now, pay later" scams in which the victim signs a loan agreement for commodities, but the price is unspecified until later.
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