Everything You Wanted To Know About Investing In Precious Metals

Mihai-Alexandru Cristea 21/03/2022 | 18:12

Investing in precious metals is a fantastic way for novices and individuals with little expertise to enter the market. Apart from buying jewelry, fancy watches, and perhaps coins, many people are unaware of the numerous investment possibilities available for these metals. Silver, gold, platinum, and palladium have been used as investments for millennia. Indeed, they were among the first commodities to be traded on exchanges and are still popular today.

 

Before you invest in precious metals, you should know a few things. The purpose of this article is to provide an overview of what precious metals are, how they are traded, and the benefits and risks of investing in them.

 

What Are Precious Metals?

Precious metals are rare minerals and have a high value per unit weight. They are often used in jewelry, electronics, and other industrial applications. They are often used as investments because they are durable, portable, and difficult to produce in large quantities. The most common precious metals are gold, silver, platinum, and palladium.

Silver is the most abundant precious metal used for money and jewelry for thousands of years. It is also used in industry because it is an excellent conductor of electricity. Gold is the second most abundant precious metal and has been used for jewelry, coins, and other decorative items for thousands of years. Furthermore, the weight of a gold bar is very easily verified, making it a popular choice for investors. Platinum is less abundant than gold but more abundant than silver. It is often used in jewelry, especially engagement rings because it does not corrode in the presence of other elements. Palladium is even less abundant than platinum and is often used in jewelry because it has a similar appearance to platinum but is cheaper.

 

How Are Precious Metals Traded?

Precious metals are traded on exchanges similarly to other commodities, such as oil and corn. Buyers and sellers meet on an exchange and agree to a price for the metal. The metal can then be transferred to the buyer’s account.

 

Investors have a few choices regarding the form in which the precious metals are purchased. Bullion is a term used to describe precious metals in coins or bars. Coins are minted by governments and usually have a higher value than the metal they contain because they are rare. Bars are created by refiners and typically contain larger quantities of metal than coins. Jewelry is also a form of bullion, but it has a lower value per unit weight because of the costs associated with designing and producing it.

 

Other coins treated as bullions include commemorative coins, minted to commemorate special events, and investment coins designed specifically for investors. These coins usually have a higher value than regular coins because they are rare and not intended for everyday use. Each metal attracts investors differently. Here’s a look at how the different metals stack up in terms of popularity:

 

Gold

It is the most popular precious metal for investment. Experts estimate that from the beginning of human history to the close of 2015, approximately 174,000 tons of gold have been mined. This is enough to fill approximately 60 Olympic-sized swimming pools. Gold is popular because it is rare, has a long history of being used as a form of currency, and is not tied to any particular country.

 

Silver 

It is the second most popular precious metal for investment. It is less expensive than gold and has a wide variety of uses in the industry. Silver is also popular with investors because it is more abundant than gold and has a lower price per ounce.

 

Platinum

It is the third most popular precious metal for investment. Platinum is rarer than gold but less rare than silver. It has a wide variety of industrial uses and is often used in jewelry.

 

Palladium

It is the fourth most popular precious metal for investment. It is less rare than platinum and is often used in jewelry because it resembles platinum but is cheaper.

 

The Benefits of Investing in Precious Metals

There are a few reasons investors might want to consider investing in precious metals.

 

They are Tangible: 

This means that you can hold them in your hand and see them. They are not digital, like stocks and bonds. This makes them a haven during times of economic uncertainty. Giving investors a sense of security and stability.

They are Portable: 

Precious metals are portable, which means you can take them with you wherever you go. This is especially beneficial for investors who want to keep their money safe and access it when needed.

They are Durable: 

Precious metals do not corrode or tarnish over time, making them a valuable investment choice. They also tend to hold their value well, even in times of economic instability.

They Are Global: 

Unlike some other investments, precious metals are traded globally. This means that they are not tied to the performance of any one country and can be used as a hedge against inflation and other economic risks.

Diversification: 

Precious metals can be used to help diversify an investment portfolio. Because they are not tied to any country or economy, they can protect against risks associated with investing in a single market.

 

The Risks of Investing in Precious Metals

While there are many benefits to investing in precious metals, there are also some risks that investors need to be aware of.

 

Price Volatility: 

The price of precious metals can be quite volatile, which means they can go up or down quickly. This can be a risk for investors who are not prepared for sharp changes in the market.

Counterparty Risk: 

When you invest in precious metals, you are essentially entrusting your money to another party. If that party fails to meet its obligations, you could lose your investment.

Storage and Insurance Costs: 

Precious metals require safe storage and must be insured against theft or loss. This can add to the cost of owning them.

Taxes: 

Precious metals are taxed as commodities in most countries. This can add to the cost of owning them and reduce any potential profits.

 

Precious metals can be a valuable investment choice, but there are some risks that investors need to be aware of. Before making any decisions, it’s important to research and understand the implications of investing in this asset class.

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Mihai-Alexandru Cristea | 19/12/2022 | 18:45

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