Before spending your precious time and money on a precious metals investment, it pays to ask yourself a few questions.
Valuable metals have been used to symbolize wealth throughout the ages. Today, the fascination with valuable metals remains as high as ever. You’ve probably come across ads on TV or the internet claiming that valuable metals always retain their intrinsic value.
The fact is that rare metals protect your portfolio regardless of the economic conditions; they tend to keep the devastating effects of inflation at bay.
So, are you thinking about investing in precious metals? Here are some questions to ask yourself before investing your time and money.
What are the Different Types of Precious Metals?
There are many different types of precious metals; however, the three main ones include gold, silver, and platinum.
Gold is the most popular metal and attracts a lot of attention among investors. While many people associate gold with jewelry, it has both financial and industrial applications as well.
Silver is a byproduct of lead, zinc, copper, and other metals. It also attracts investors and has many industrial uses, although the name does not carry as much weight as gold.
Platinum is relatively rare. A study shows that there is only around 250 tons of platinum production every year.
As investment assets, gold, silver, and platinum are actual physical commodities unlike intangibles such as stocks and bonds that only exist on paper. Knowing the different types of valuable metals will allow you to invest in one that suits you best.
Is Investing in Precious Metals Worth It?
There are many advantages to investing in gold and other rare metals. In recent years, the US government implemented numerous measures to help combat the severe recession. This concern for the future resulted in an increase in commodity prices like precious metals. History proves that investing in valuable metals is a powerful way to reduce risk during tough economic times.
Rare metals represent a safe haven against an uncertain environment and equities. Moreover, valuable metals have been around since the beginning of civilization, and this is a testament to their power.
Finally, these metals are a store of wealth and often have an opposite correlation with other assets. Even when investors lose faith in other assets, valuable metals still retain their values.
How Do I Get Started?
When choosing an instrument for investing in precious metals, we strongly recommend you conduct thorough research. It is important to understand the different options, degrees of liquidity, and the risk involved. This way, you can pick an option that works best for you.
There are several options to go about investing in valuable metals. These include:
Physical Bars and Coins: This is the purest way to invest in rare metals. Bars and coins made of silver, platinum, gold, and other valuable metals can be obtained from coin dealers around the globe like Provident Metals. Gold bars are the most popular and are often available in sizes ranging from 400 ounces all the way to one pound. Many governments take the initiative to mint coins; however, note that the cost of these coins will depend on the spot prices of the metals.
ETN and ETFs Products: Exchange Trade Funds and ETNs trade on a stock exchange and aim to replicate the track of the metal. Popular ETF products include IAU and GLD which replicate the price action in gold, SLV which tracks the price of silver, and PPLT which correlates with the price of platinum. Some ETN products rise when the price for particular precious metals fall, and others rise when the prices of these metals rise.
Jewelry: While dealing with physical metals is more cost efficient and easier, jewelry is also an excellent way to invest in valuable metals. When you choose to invest in rare metals through jewelry, consider the jeweler’s mark up and manufacturing costs. However, over the long term, jewelry pieces hold their value and can withstand the effects of inflation.
Valuable Metals Accounts: Some banks offer two types of bank accounts for valuable metals, namely allocated and unallocated accounts. An allocated account is secure since the metals are stored in a vault. With an unallocated account, on the other hand, investors don’t have specific coins or bars allotted to them and the bank can lease the gold.
Mining Equities: Buying shares from firms engaged in mining, production, or trade of rare metals is also an excellent way to invest in valuable metals. The stocks tend to depend on the price of rare metals, but this type of investment assumes additional risks since it is a bet on the properties and management of the company. In case there is a problem with either, the price of the stock is not dictated by the underlying metals.
What About VAT and Taxes?
When you are an active precious metal investor, you will be treated as a business and your profits will be taxed as income. In the US, all valuable metals held over one year are subject to a maximum 28% capital gains tax. Know your tax obligations and save yourself the hassles of dealing with the IRS.
What is Bullion?
This is a common term that you are likely to come across when dealing with rare metals. Bullion is precious metals in bulk. The bullion market is where the over-the-counter trade of valuable metals takes place. Understanding the different terms used when dealing with valuable metals prevents confusion and mistakes.
Who Should I Buy From?
Sadly, there are many scams involving rare metals so it pays to be extra cautious. Locate a licensed, insured, certified, and reputable company. Due to the myriad options available, be vigilant when comparing the prices between dealers and carefully read their terms. Also, be careful when dealing with a company that offers precious metals below their current market price since they could be fraudulent. You might want to use a professional financial adviser to help you choose a precious metal dealer.
Precious metals are a hedge against inflation, and they allow you to maintain a balanced portfolio even in the event of deflation. Though the market and price for metals can be quite stable and rewarding, there may not be immediate price increases. There are many other factors at play (such as mining and sales) that affect the price of the metals. To make a smart investment, ask yourself the questions above and do your due diligence.
Contact Provident Metals if you have other questions about investing in gold, silver, and other precious metals.