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Precious metals are an attractive asset to own for many reasons – they are rare, have industrial usage, and they tend to be a “safe haven” when the economy isn’t doing well.
Many investors will buy them to hedge their positions and protect against economic downturns.
This relationship can be observed during the great recession of 2008. Between 2008 and 2012, gold prices skyrocketed, hitting an all-time high price of $1917.90 / oz in August 2011.
If you are looking to invest in precious metals, keep reading this beginner guide to learn more about the rare earth metals and what makes them an attractive investment.
Investing in Precious Metals
Most people recognize these rare earth metals from the beautiful shine they give off when worn as jewelry, but did you know you could also invest in them just like investing in any other stock?
There are a few different metals to choose from, including:
- And Copper
These precious metals tend to move in the same general price direction. However, each metal is individual and can experience drastic price swings based on various factors.
Investing in these metals can help investors diversify their portfolio and protect against volatility in the stock market.
The king of precious metals, gold, has been around since at least 4,000 B.C., Mainly being worn as jewelry and as a sign of wealth.
Gold was then used as a form of currency and the standard for international trade. As time went on, countries began making gold coins for trade, and in 1900 the United States introduced the Gold Standard Act that stated gold is the only standard of receiving paper money.
It stayed that way until 1971 when the United States eliminated the gold standard and instead relied on the U.S Dollar.
However, there are still ways you can invest and get your share of the gold.
One way of investing in gold is through the derivatives market. These gold derivatives mimic the price of physical gold by using it as the underlying asset.
These types of derivatives are traded on the over the counter (OTC) market and are traded as contracts. Investing in options is also a popular strategy among people looking for a way to hedge (protect) their portfolios.
Gold investing through ETFs is another popular way to invest in rare earth metal.
The purpose of the gold ETF is to directly reflect the price of physical gold, giving investors greater exposure without having to physically buy gold. The most popular gold ETF is the SPDR Gold ETF that goes by the ticker GLD.
Looking to invest in gold without as much exposure? Take a look at gold mining companies.
These mining companies sell gold, making a profit on the difference it takes to operate these mines.
Keep in mind with these types of stocks, the performance can come down to how well the company executes, and not as much reflect the price of gold. Warren Buffett recently took this route with his significant investment in Barrick Gold (GOLD).
Gold’s younger brother, silver, is also an attractive investment. Silvers once played a major role in the photography and film industry being used to make the film. However, since the digital film took over, silver is predominantly used in the electrical industry.
Silver typically follows the trend with gold but is widely considered more volatile due to its industrial usage.
Just like gold, there are several ways to invest in silver.
You can invest in silver through derivatives, just like you would with gold. The ETF market, on the other hand, has helped investors gain access to the unique metal.
While investors pile money into gold for the sheer value of it, silver has uses beyond just being a place to park cash. It is being used in the electrical and automotive industries and is also being used to make batteries.
The practical usage of silver makes its price range more volatile than if it were just based on supply and demand.
The most popular silver ETF is the iShares Silver Trust (SLV) that tracks the price of silver. Investing in these ETFs is as easy as buying stock – all you have to do is contact your broker or place an order online.
Silver mining companies have been a great investment as of recently since silver prices have been sitting close to all-time highs.
A few popular silver mining companies include First Majestic Silver (AG) and Hecla Mining (HL).
Contrary to popular belief, platinum actually trades at a higher price than gold and silver because of how rare the earth metal is.
However, throughout the years, gold and silver have been much better performers due to their appeal as a “safe haven” during economic downturns.
The price of platinum can be influenced relatively easily, making it a challenging investment to hold onto. In fact, the Volkswagon scandal had a massive influence on the prices of platinum, dragging them lower on the news.
If you are looking to invest in platinum, ETFs are most likely your best bet. They can provide exposure to the rare earth metal without having to keep up with the costs of physically owning it.
One of the best platinum ETFs is the Physical Platinum Shares ETF that is listed under the ticker PPLT.
There are several platinum mining companies you can choose from. Some of the top choices include Anglo American Platinum (AAUKF) and Impala Platinum Holdings (IMPUY).
Owning Physical Metals
Another option for investing in precious metals is purchasing physical bullion. Buying rare metals this way can make good investments. However, it’s essential to keep in mind that storing it may be an added cost.
Not only is storing precious metals an additional cost, but you also run the risk of it being stolen or lost.
Interested in Learning More About These Rare Investments?
Owning precious metals even sounds like a good idea as an investment. They tend to hold their value and can be kept for years.
If you do decide to invest, it’s critical to know what is going on from a macro-economic standpoint to avoid any sudden volatility.
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