Precious metals provide a viable and often lucrative option for individuals looking to invest their money. The value of precious metals fluctuates, and investors must be aware of the risks involved, as well as the potential rewards. For this article we contacted the experts at Money Metals for advice on how to invest in precious metals, including why an individual may want to consider such an investment, what types of precious metals are available for investment, and how to go about investing in them. With this information, readers will be better equipped to make wise decisions about their investments in precious metals.
What Are Precious Metals?
Precious metals are defined as any rare element or metal with a high economic value. Examples include gold, silver, platinum and palladium. Gold and silver are the most popular precious metals for investors, but all four possess unique qualities that may suit different kinds of investments.
Gold is often regarded as a safe haven during turbulent times due to its historical reliability when it comes to preserving wealth. Silver has a lower price point than gold and has industrial applications which make it attractive for investors looking for exposure to both physical assets and potential price gains from industrial demand. Platinum and palladium each possess their own unique qualities which can be beneficial in certain investment strategies.
One of the most popular and investable precious metals is gold. Aside from its durability and shapeability, it is also capable of conducting heat and electricity. The metal is primarily used for jewellery and as currency, as well as for dentistry and electronics. As a store of value, it has been around for a long time. This makes it a popular investment during turbulent economic or political times, as well as in times of rising inflation.
The market determines its value 24 hours a day, 7 days a week. Quite simply, when hoarders decide to sell, prices drop. Gold prices rise when new supplies are quickly absorbed by buyers. In recent years, people have been hoarding gold for a variety of reasons including inflation, systemic financial concerns and war or political crises.
In terms of precious metals, silver ranks second. Several industries use it, including electrical, electronics, and photography. As an example, silver plays a crucial role in solar panels due to its electrical properties. Additionally, silver is used for a wide range of goods, including jewellery, silverware, bars and coins.
The dual role of silver as a store of value and an industrial metal makes its price more volatile than gold. Prices of silver stocks can be adversely affected by volatility. Sometimes when industrial demand and investor interest are high, silver prices can outperform gold.
In addition to platinum, there are five other platinum-group metals (PGM): ruthenium, rhodium, palladium, osmium, and iridium. Often, they are found together in the same mineral deposits due to their similar properties.
The primary use of platinum is industrial, like that of silver. Catalytic converters provide a means of reducing emissions from vehicles and are essential for the automotive industry. Furthermore, platinum is used in the petroleum, refining, and computer industries. Also, platinum is used in some jewellery. The metal doesn’t hold the same high investment values as silver and gold due to its rarity.
In addition to platinum, palladium has important industrial applications. Chemical applications, dental procedures, medicine, jewellery, and groundwater treatment use precious metals. Despite its rareness and high value for those purposes, palladium isn’t as popular among investors as other precious metals.
Sheets of palladium can be made with a thickness of just one-two hundred fifty thousandths of an inch by metalworkers. Despite its malleability, palladium becomes stronger and harder after it is worked at room temperature. Solar energy and fuel cells are then made possible by the sheets.
What are the advantages of investing in precious metals?
There are a variety of benefits to investing in precious metals over stocks, such as inflation protection, intrinsic value, no credit risk, high liquidity, portfolio diversification, and ease of purchasing.
What are the disadvantages of investing in precious metals?
Individuals will not receive income from precious metals since they have no cash flow. The investment is also accompanied by storage costs if the metal is held outright. The risk of theft is also present. Additionally, a profit on them is also taxed by the IRS as a collectable, at 28%, higher than capital gains tax.
What are the risks of investing in precious metals?
One of the biggest risks that you’ll have to look out for is price volatility. Many factors can influence the prices of precious metals including inflation, investor demand, Federal Reserve policy, mining supply and changes in the economy.
Stocks, ETFs, and mutual funds that are derived from precious metals (e.g., gold, silver, and platinum) come with different risks. For example, mining companies could go through financial issues, management problems or new mine overrun costs that could lead to its share prices drastically underperforming precious metal prices. There’s also a strong correlation between precious metal stocks and the stock market, which can cause their prices to underperform the price of underlying metals during a market downturn.
Another big risk of investing in precious metals is the growth of cryptocurrency. The properties of crypto assets are like those of gold and silver. There are two potential advantages to holding both: preserving value and hedging against inflation and geopolitical risks. However, the price of gold and silver could decline as more investors turn to cryptocurrencies.
How do you invest in precious metals?
There are multiple ways to invest in precious metals and they include:
Commodity Exchange-Traded Funds (ETFs) – Investing in gold, silver, palladium, and platinum through exchange-traded funds is simple and fluid. You don’t have a claim on the metal in an ETF, since you don’t own the physical commodity. You can’t receive actual gold bars or silver coins.
Common Stocks and Mutual Funds – Precious metals miners’ shares are sensitive to precious metal price movements. You may want to stick with funds with managers who have proven track records unless you are familiar with the way mining stocks are valued.
Futures and Options – Investors looking to make big metal bets can take advantage of the liquidity and leverage available on the futures and options markets. Derivative products offer the greatest potential for profit and loss.
Bullion – A safe deposit box or safe is the only place where coins and bars can be kept. Certainly, bullion is the best option for those who expect the worst, but if you have a time horizon, it is illiquid and downright difficult to manage.
Certificates – Investors can own gold through certificates without having to deal with transport or storage issues. However, certificates are just paper when it comes to insurance in the event of a disaster. They won’t be exchanged for anything valuable.
What are the top precious metals to invest in?
Investing in precious metals on the stock market is one of the easiest ways to do so. The stocks of several precious metals companies are traded on stock exchanges. Investors could consider these five precious metal stocks:
Franco-Nevada (NYSE:FNV) – It is one of the leading royalty and streaming companies focused on gold. In addition to silver and PGM, the company also generates income from energy, silver, OGM and other mining materials.
First Majestic Silver (NYSE:AG) – Silver and gold mining are the main focuses of First Majestic Silver. Among miners with a market cap of at least $1 billion, it was the company with the most direct exposure to silver’s price in 2021, with 56% of its revenues related to silver.
Newmont Mining (NYSE:NEM) – It is the world’s largest gold and fourth-largest silver mining company. Copper, zinc, and lead are also among the basic materials that Newmont produces in addition to precious metals.
Wheaton Precious Metals (NYSE:WPM) – A leading precious metals streaming company, Wheaton Precious Metals generates revenue from gold, silver, palladium, and cobalt.
Sibanye-Stillwater (NYSE:SBSW) – Among the largest primary producers of PGMs in the world, Sibanye-Stillwater produces platinum and palladium. Additionally, it is the world leader in producing gold and it invests in metals that are used in the manufacture of batteries for electric vehicles (EVs).
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