Investing in precious metals isn’t the first thing that someone thinks of when they put together their financial portfolio, and that is unfortunate because if after reading this you take a quick look at a chart tracking the price of gold or silver, you’ll understand why. Over the past five years, the price of gold has gone from approximately $650 per ounce to highs just under $1900 per ounce. I’ll leave you to do the math but you don’t need a calculator to realize that there is money to be made in precious metals. Gold is perhaps the best known of the precious metals and has always been seen as a symbol of wealth going back thousands of years. While gold is indeed a material that has industrial uses besides its better known attributes as a hedge against inflation and for making fine jewelry, it is primarily seen in the financial community as market indicators of various economic trends and the overall health and level of prices i the economy.
Why Are Metals Precious?
Gold is the precious metal most familiar to the general public. If you polled several thousand people a much higher percentage of them could tell you the approximate price of an ounce of gold than could tell you the price of any other metal or commodity. Along with gold the most closely watched, and most coveted precious metals are silver, platinum, palladium and the industrial metals such as copper and zinc. As mentioned, almost all of these metals have uses other than sitting in a vault and accumulating or losing value based on world events. From electronic equipment and automobile parts to fine jewelry and construction material, metals are valuable for many reasons. However, while demand for metals based on their utility will certainly effect the price where they trade on the global markets, other factors such as global politics, social unrest, and the financial and economic health of the global economy also play a key role in the price movement of precious metals. If you are thinking of investing in the metals markets it is important to understand that the price and value of your investment will change 24/7, and often due to the most bizarre and seemingly unrelated events.
How Do I Invest In Precious Metals?
This is a good question because unlike other investment product that are fairly easy to incorporate into your overall financial product mix, investing in precious metals requires a little more homework. The reason for this is due to the fact that there are a lot of different ways to profit when precious metals increase in value. One way to get into the metals market is simply to buy into a stock equity mutual fund that invests primarily in companies that mine for precious metals. Ask your investment adviser or someone that knows about these funds and you will find mutual funds that are 100% invested in the equity of corporations that mine gold, silver, and every other metal in countries around the world. As the price of metals change on the open market the value of these companies and their stocks will also change. There are also products knows as ETF’s, or exchange traded funds that are exclusively tied to various precious metals. These ETF’s are not household names to most people but they are becoming much more popular and much more commonly used by the everyday investor as a means to diversify an investment portfolio into the metals markets.
The more popular methods of putting your investment dollars to work in the precious metals market is through the purchase of coins minted from these metals. Whether antique coins or those much more well-known types such as the gold Krugerrand, coins are yet another way to get into the metals markets. Then of course there is simply buying bars of gold from the mint or government banks. But while gold bars are great material for Hollywood, with every known villain from The Joker to Dr. No attempting to steal the precious bars from Fort Knox, they aren’t really a practical means for the common investor to add gold to an investment portfolio.
Risky Metals
Precious metal investing isn’t for the faint of heart. Unless you are a professional trader with deep pockets it is a market best left to the pros. Go back to the price chart referenced in the beginning of this article. Gold right now is at an extremely high level compared to any time in the last 5 – 10 years. A professional trader will be able to profit from buying and selling as it moves forward in either direction from this price level. The relative price of gold isn’t quite as important to them, especially if they are short term traders. On the other hand as an investor what would you do at this point? Buy gold today and perhaps risk the metal plummeting due to a price correction? Or wait for it to fall from these levels only to see it continue to ever higher historical levels while you sit on the sidelines wishing you had taken the risk and simply bought it. If you’re investment horizon is long term you might be able to afford to take that risk. If you are looking for quick returns, you have a better chance of hitting a home run off of Rafael Santanta.
My take: The price of all precious metals right now is somewhat perplexing. They are all at relatively high levels despite a low inflation environment around the world and sluggish economic activity that would tend to soften demand for metals on a number of fronts. The only factors that must account for the relatively high price of precious metals, and these factors are not to be taken lightly are global political unrest and the horrendous state of so many government budgets, which means that the market is pricing-in inflation down the road. Too risky for me.
