Before Beginning a Precious Metals Investment

Legal noticeInvestment in precious metals is gaining popularity. There are a lot of people coming into the trading market who have never been involved in any type of investment before. They have seen the writing on the wall, though, and they understand that their savings may be worthless in the near future.

Gold KrugerrandsThis bit of wisdom is not enough, however, to protect anyone from investment errors. Too many people beginning to invest in precious metals can only think of gold coins.

They do not realize the full spectrum of precious metals available. Nor do they comprehend all the forms which these metals may take. The following should serve as an introduction to precious metals investment.

The Precious Metals Family

Silver and gold are well-known but there is a whole other class of precious metals about which few people know. They are not just curiosities. They are profitable investment targets as well. However, it makes sense to start with the least valuable asset in the precious metal family.

 

Silver

Silver is the least valuable precious metal in terms of price per ounce, but you should not hold this low price against it. Low-priced assets often have a lot more upside than their higher-priced counterparts. In silver’s case, its near-term future may include a doubling of its present market value due to some compelling historical evidence.

Silver has been around a long time. It was known and cherished by people even before something as elementary as writing was invented. Like gold, this metal was and is easily manipulated.

It is malleable, though not so malleable as gold. That allowed people to turn it easily into jewelry. Its ductility, which allows silver to be drawn out into long wires, would prove to be additionally valuable when electric and electronic applications were discovered for this precious metal.

Silver American EaglesSilver’s prices are driven by two factors.

Like all other precious metals, silver is a hedge against inflation. As the prices of everything seem to be going up, investors flock to silver in order to preserve their wealth and maintain a certain purchasing power.

Additionally, silver is in demand for many electronic applications because it is useful in making the most critical connections. Its ductility and its ability to conduct electricity make it a nearly perfect component.

The price of silver has moved forward with incredible speed since 2001. At that time, it was worth just $4 per ounce. Now worth about $30 an ounce, silver has profited many people who were shrewd enough to get in on this investment when it was low.

There is additional reason to move your money into silver right now.

The price of silver has historically maintained a ratio with the price of gold. Usually, silver is worth anywhere from 5% to 7% of the value of gold. While this ratio has varied throughout the years, silver always seems to gravitate to this percentage range.

At the moment, silver is worth only about 2% of the value of gold per ounce. In order to regain its historical ratio with the gold rice, silver may acquire two or three times its present value.

 

Gold

 

This is the investment that has brought everyone running into the precious metals market. Gold is an excellent asset into which everyone should invest some of their money. It has solid support behind its price and its present value is not just based on unfounded enthusiasm.

Gold has a certain majesty in peoples’ eyes. It has been treasured since time immemorial. People have use it to adorn their most sacred and important items. It became the first currency and remained the world’s monetary standard for thousands of years. In fact, the US dollar itself was tied to the value of this precious metal through the gold standard right up until 1971.

It is the classic hedge against inflation. Decoupling the dollar from gold has only made gold even stronger. Since the government can only print currency but cannot make more gold, the price of an ounce of gold moves irresistibly upward whenever the Federal Reserve injects more money into the economy.

This is not the only thing supporting high gold prices, though. Like silver, gold has many applications in electronics. It is the most capable conductor of electricity and serves as the material that makes sensitive contact points in a variety of devices, including computers and mobile phones.

Since 2001, gold has more than quintupled its value per ounce. While concerns about the fiscal cliff are driving down prices everywhere, few are doubtful of gold’s ability to weather this storm and even thrive on the potential turmoil that the next year may hold for the US economy.

Platinum ProofThe Platinum Group

Platinum is typically worth more than gold. The last few years have seen gold eclipse platinum’s price due to an unusual amount of enthusiasm. However, just as silver usually maintains a certain ratio with gold, platinum is expected to resume its superior price range in the future.

Many people are not even aware of platinum. It was only discovered by the world at large in the 18th century so it does not have a long history with most human cultures.

Platinum has an important use in industry, though, just like the other members of the precious metals family. About one out of every three bars of platinum that are produced each year goes immediately to the automobile industry where it is used to make catalytic converters. This gives strong support for its market price.

There are other, lesser-known metals in this group that are closely related to platinum. They include iridium, palladium and others. All have industrial applications.

Why Invest in Precious Metals?

There are more reasons to invest in these metals than just their use as hedges against inflation. Some people naturally shy away from these investments because they think that they are old-fashioned or even medieval.

The truth is that these commodities are both old-fashioned and innovative. While much of the enthusiasm for them is derived from their luster and their beauty, they are also finding increasing usefulness in modern technology.

The most important reason for investing in precious metals right now, though, is their ability to preserve your purchasing power. Inflation is undermining the vast majority of traditional investment assets right now.

Most stocks are not really keeping up with inflation and bonds are terrible in this regard. Precious metals are one of the few assets available today that have proven themselves capable of outpacing inflation.

Types of Precious Metals Investments

You can invest in precious metals in more than one way. In fact, it is difficult to list all the different ways that you can take part in precious metal investments.

The simplest way to describe possible investments is to divide them into direct and indirect forms. Direct investments in precious metals involve coins and bars, for the most part. Indirect investments are made using stocks and exchange-traded funds.

Many investors have tired of the abstract investments on the stock market and their failure to perform. This has turned them to direct, physical investments in coins and bars made from precious metals. You can buy silver, gold and platinum coins from the national mints of several different countries.

Examples include the American Eagles, Chinese Pandas and Canadian Maple Leafs. These countries make coins in silver, gold and platinum. They sell for the spot price of their underlying assets plus a certain amount extra due to the design costs.

Bars made from precious metals are also available from national and private mints. These forms of precious metal investment are more efficient than coins because bars are sold for prices that adhere more closely to the spot value on the daily market.

Some people are hesitant to invest in bars because they assume that they must make major investments to buy the large, kilogram bars that they have seen on television and in the movies. However, many companies make smaller bars available. Examples include Credit Suisse and Johnson Matthey.

Many investors prefer to invest in precious metals indirectly because they do not want to spend money on maintenance. Once you buy coins and bars made from precious metals, you become responsible for their maintenance. However, if you invest in stocks and ETFs, you can rid yourself of this responsibility while still getting exposure to the underlying assets.

If you are going to get into precious metals investment, you should make some haste about it. With the fiscal cliff looming, precious metals are at a crossroad. You have probably heard the adage about buying low and selling high.

Now is the time to get into these assets and wait for the exponential performance that will follow the certain turmoil in the markets next year as the government encounters the fiscal cliff.