Congratulations! You’ve taken the first step toward controlling your financial future.
Whether you’re a novice or expert investor, doing your own research is the first — and perhaps the most important — step toward successfully investing in precious metals.
Assessing Your Options
There is a wide range of precious metal investment options, from safe and conservative to aggressive and speculative. Metals can be a vehicle for growth or income, and investors can take physical possession of their bullion or purchase a unit of value on paper.
Choosing the most suitable instrument in light of your age, other investments, and current economic situation can be a challenge.
The risk tolerance of someone saving for retirement may be different than a person looking to turn a short term profit.
This guide will cover the basics to help you navigate that decision making process, and help you get started on the road to healthy investing.
Please note: This is just a general guide. Like any investment vehicle, completing your own due diligence is paramount in making an informed decision.
What Are Precious Metals?
Precious metals are metals such as gold, silver, platinum and palladium that are primarily valued as units of exchange. These metals all have some kind of industrial value (for example, silver is used in many industries), but people purchase them primarily because they have some economic value. These metals are rare–and the more rare they are, the more they are generally worth. Many of these metals are featured in jewelry and historically were used as currency.
Gold - The most highly valued precious metal, gold has a long history as a unit of trade. It has bright yellow color and is frequently featured in jewelry. It is relatively rare and has fewer industrial uses.
Silver - Often paired with gold investments, silver has the highest electrical conductivity of any element and highest thermal conductivity of any metal, making it highly desirable for many industrial uses. Silver is more available than gold, but its use in industry makes the market and prices more volatile as demand changes.
Platinum - One of the rarest elements in the Earth’s crust, platinum is also the least reactive metal. It has many industrial uses, and has become valued as an economic investment relatively recently.
Palladium - The rarity of this metal coupled with its high industrial demand have generated interest in palladium as an investment. The market for this metal is also prone to large price swings.
Copper - Sometimes considered a “base metal” because of its natural abundance, copper is nevertheless desirable as an accessible investment metal. Copper shares gold’s history as currency and attractive jewelry metal.
Diamonds - While not a precious metal at all, diamonds have always been valued for their shine and natural beauty. Recently, diamonds have grown in popularity as an investment, and are similarly desirable for their rarity, intrinsic value and as a symbol of luxury.
Why Invest in Precious Metals?
Diversification and careful management of risk are important keys to investing success. This means you want to have many types of investments, so that if one investment doesn’t do well, you will be protected.
Generally, it is recommended that precious metals make up about 5 to 15 percent of your complete investment portfolio. Gold and other commodity metals historically maintain an intrinsic value (in other words, they are never worth $0) and tend to move opposite the dollar. In a diversified portfolio, this will mean you see some positive no matter which way the overall economy shifts (if the dollar is worth less, your gold will be worth more, and vice versa).
However, gold, silver and other precious metals are different from other investments in that they do not earn interest. These possessions are more like “wealth insurance,” a way to guarantee that, no matter what happens in the economy as a whole, you will always have funds available to you. Because of this, people looking to precious metals as a long-term investment do not often sell or trade.
Types of Investments
There are many ways to invest in precious metals. Choose the right variety for your investment strategy.
Bullion - Bullion is physical precious metal, often sold as a round, coin or bar. It can be produced in a sovereign (or country’s) mint or in a privately owned mint. Bullion investors are collecting a physical asset, either in their personal possession or stored for safekeeping at a third-party location. Bullion is judged by its fineness, purity and weight. The price of bullion is tied to the “spot price” of the precious metal.
Coin vs. Round - A coin is bullion issued by a sovereign mint to be used as legal currency. A round can look just like a coin, but does not have any currency denomination and can not be used as legal tender. Coins used as bullion are generally worth more than their face value because of the precious metal content (for example, a $20 Liberty Gold Double Eagle has a “face value” of $20, but was worth $1,412.89 in July 2013 because of the price of the gold it contained.)
Numismatic or rare coins - These are coins that are valuable not just because of their precious metals content but also because of their age and rarity. Collectors appreciate these coins because of unique designs, mistakes in their creation, and other reasons not directly related to the precious metal content. The price of numismatic coins may be related to the price of the metal, but is not directly tied to that price.
ETFs - An ETF or “exchange traded fund” is a group of assets sold together on the stock market. The value of an ETF will change every day, and can change every 60 seconds, as the stock market as a whole changes. For example, a gold ETF such as Streettracks Gold Shares (which use the acronym GLD on the New York Stock Exchange) tracks the price of gold overall, and the gold ETF allows you to own gold–kept by the ETF creator in a secure facility–without physically possessing the metal. In this way, a precious metal ETF acts like other stocks or commodities but has the physical backing that other stocks may lack.
Investing in an ETF is ideal for consumers looking for a shorter-term investment or for an investor with a conventional portfolio not interested in managing a physical asset.
ETFs have an annual administration fee of between 0.4 and 0.5% and can be bought through a stockbroker.
Stocks - A stock is not an investment in a precious metal asset directly, but is a way to buy a part of a company. For example, a gold stock does not buy any gold, but gives you a “share” of a company that mines or processes gold for example. The price of this stock may be related to the precious metal but can also be affected by various outside factors.
Check the glossary to look up any other terms you may need to learn as you begin your investment journey.
Can I Use Precious Metals to Save for Retirement?
Precious metals can be used to save for retirement! Only those bullion certified as meeting set investment standards can be included in an IRA. Some kinds of gold, silver, platinum, palladium, and collector’s coins are acceptable to add to your IRA.
What Does Investing in Precious Metals Cost?
There are products available to investors at every price and risk level, from smaller or less valuable bullion rounds to highly valuable and/or heavy bars. Bullion is sold at a set amount (premium) above what is known as the “spot price.” The spot price is the price at which the physical metal can be sold or bought at a specified time and place. Websites such as Provident Metals use dynamic pricing to update the sale price for products as the market changes.
Numismatic coins tend to have a higher premium, as they are valued for more than their precious metal content. Bullion rounds and medals are generally less expensive, meaning they are sold closer to the spot price.
How Do I Buy Precious Metals?
Precious metals bullion can be bought from a local dealer or online at places like ProvidentMetals.com. An online dealer will have greater selection and transparent pricing.
Often, an investor will try to buy bullion when the price is low and sell it when prices are high, however, these kinds of changes are very hard to predict and should depend on your personal investment strategy. Precious metals are generally considered a long-term investment or way to pass wealth on to the next generation.
How Do I Sell Precious Metals?
Precious metals can be sold to a local coin dealer or to an online dealer like Provident Metals. Be sure you sell your bullion to a reputable dealer that you can trust to provide a reasonable sale price tied to the current spot price.