We’re a fiat money society, but, recently the recession and economic downturn has brought with it significant threats to the value of paper money, and this has led many people to start to appreciate the inflation beating trade in precious metals. The precious metals we’re interested in here are gold, silver, platinum and palladium. Not only are these metals traded as stocks and shares (in the companies that mine them) but there is a worldwide trade in physical precious metals. The most common example of trade in precious metals is buying and selling gold coins.
Precious Metals Are a Commodity
It’s not possible to discuss precious metal trading without first understanding that gold, silver, platinum and other precious metals are considered to be commodities. Brokers who trade in commodities usually trade in futures, but you can find independent brokers that have specialised in the trade of precious metal commodities. Not stocks and share certificates, but physical precious metals.
Precious metals have acted as a hedge against the ever weakening dollar. Because the dollar is the world standard currency it affects every market and every economy. Weaker currencies cause precious metals and in particular, gold ETPs (ETFs & ETNs) to be considered an essential part of any portfolio. The financial crisis of 2008 and beyond led to central bank ZIRP (Zero Interest Rate Policies) and QE (Quantitative Easing—or, money printing) which left the value of the dollar as the primary casualty. To gain protection it was essential for wise investors to gravitate towards gold and other precious metals.
Exchange Traded Funds
The issuance of a wide variety of precious metals based ETPs has made adding these to investors’ portfolios relatively easy. Previous to their existence it was cumbersome, time-consuming and off-putting to deal with these products for most investors. Back then, you either bought gold coins, ingots, futures or options, and, when all else failed gold stocks. Gold coins are an inefficient market with illiquidity and serious price spreads for buyers and sellers. Futures and options involved more leverage, qualified investors and a lot of paper work not to mention more trading.
People who are involved in the financial world may have heard the same refrain many times: from big financial institutions to the smallest trading desks, forward-thinking traders are looking at buying into gold and silver markets or other precious metals equities or financial products. This is mainly because of concerns about the possible devaluation of national currencie, but also for a variety of other reasons. For those who are interested in getting into gold, silver, platinum, palladium or other valuable commodities, some basic guidance will help individuals invest in precious metals in ways that can help their overall finances in the future.
- First, get access to a broker. Whether it’s an online brokerage account, or a personal broker who you can call on for help, the individual investor will need some kind of broker service in order to get involved with precious metals investing. Of course, each of these options will carry the expected pros and cons. Online brokering will prove very convenient, while face-to-face brokering will maximize your opportunities to ask questions and get advice.
- Secondly, you’ll have to look at all of the options for investing in precious metals. These days, the financial market has spawned a great variety of resources for investors who want to cash in on changes in gold and silver prices, or other valuations for precious metals, so make sure that you’re well educated on which choice is best for your investment plan.
- Evaluate precious metals ETFs and ETNs. Exchange traded funds or exchange traded notes are active funds that are traded throughout the market day. They are much like stocks, but they bundle equities for specific yield and risk ratios.
- Take a look at other precious metals funds. From precious metals index funds to various mutual funds for gold and silver, the variety of precious metals funds out there means there’s something for just about every investor who wants to get involved. Understand that funds exist that will effectively help individuals profit from decreases in gold or silver value, which is classically called “shorting” these commodities.
- Compare raw versus numismatic values for precious metals investments. One of the very critical aspects of investing in gold, silver or other kinds of precious metals is whether or not the investor wants to trade into raw materials or other items like collectibles that have intrinsic value.
- 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 the 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.
- Track precious metals investments. When the individual trader has bought into either basic precious metals commodities, gold or silver futures, funds like ETFs and ETNs, mining operations or anything else based on precious metals value, tracking these investments is key to profit.
- Think about profit taking. Every investor has his own strategy for benefiting from increases in price. Some want to hold onto their gold, silver or precious metals for a very long time, hoping that in future unforeseen events, those prices will spiral up into the stratosphere, creating vast wealth. Others want to profit annually from increases in equity values. Having a concrete strategy will help a single investor succeed when the idea is to invest in precious metals wisely.