Precious metals are rare, natural metals that have a higher economic value. The high value is due to their scarcity, use, and role in preserving value. Globally, the most recognized precious metals are gold, platinum, and silver, in that order. Before the introduction of currencies, these precious metals acted as money. People could exchange quantities of these metals for goods and services. Nowadays, these metals are used for various purposes, including preserving wealth as a form of investment and hedges towards inflation. The demand for precious metals gets influenced by fear of inflation, financial stability, and perceived war risks that affect currencies. Here is a simple guide to precious metals and how to invest in gold for beginners.
Types of Metals
Here are the common types of precious metals used globally:
Gold is the topmost precious metal, and it’s the most used to trade and invest. The metal is unique because of its durability, malleability, and a good conductor of heat and electricity. It’s mostly used as a form of currency and also to manufacture high-end jewelry. The value of gold gets affected by its demand. It is not easy to get gold, and increasing demand makes the price go higher. Factors that make people invest in gold include financial instability, currency inflation, political or war crises.
Silver offers more volatile price fluctuations than gold, and it’s best used to store value and as an industrial material. The industrial supply and demand for silver usually significantly affect its value, making it rapidly change. Silver is mainly used in:
- photography industry
- electrical appliances
- medical products industry and superconductor applications
- batteries markets
- microcircuit markets
Unlike its predecessors, platinum gets traded in global market commodities. At times, it fetches higher prices than gold since it’s very rare and its sources continue diminishing. Other determinants of its price include its industrial use to reduce automotive emissions, computer industries, vehicle sales, production numbers, and mining intensity, usually done in South Africa and Russia.
Palladium is the least known of all precious metals and is best used in industries to manufacture electronics and other industrial components. Other sectors that also use it include chemical applications, dentistry, jewelry, medicine, and to treat underground water. The metal gets mined in South Africa, the United States, Canada, and Russia. Sometimes, the metal gets infused with yellow gold to create a stronger metal than white gold. In some countries, the metal is converted into coins and used as a means of storing value.
Why Invest in Precious Metals
Unlike currencies, precious metals rarely get hit by inflation. They are always protected due to their intrinsic value; they don’t carry credit risks and never get inflated. You can’t have as many as you desire since they are scarce and their sources are diminishing. Unlike currencies, they offer insurance against political or military upheavals in unstable countries.
Besides this, the metals provide negative or low correlations on assets such as bonds and stocks. A small percentage of them in your portfolio greatly reduces volatility and risks. An investor having precious metals savings is better off than one who stores currencies. Currencies inflate and deflate, while precious metals rarely fluctuate.
How to Invest in Precious Metals
There are various ways you can invest in precious metals, depending on your preferences and amount. Here are some ways:
- Exchange-Traded Funds: with this investment mode, companies enable investors to deposit money that purchases physical gold. With this method, you earn from the proceeds obtained by buying and selling precious metals. You don’t own the metals but buy shares from the trading company.
- Common stocks and Mutual Funds: You can fund mining companies and benefit from shares. You need to get a reliable company and hire a manager to handle the trading.
- Opening an IRA: You can save for your retirement using precious metals in your retirement account. Here is how to invest in gold for beginners. Investing in a gold IRA serves as a better hedge towards currency inflation and guarantees less or no retirement value fluctuations.
- Stocks Certificates: You can own gold by not keeping it physically. In this method, you only get a certificate showing you have some gold. They are best when used in insecure areas.
- Physical Ownership: With this method, you physically own the precious metals and control the investmnet entirely. You can buy these metals from online stores and Bullion services. It would help if you found safe custody for the same.
With increased demand and reducing sources, precious stones are growing in value, and it would be best if you start investing in them now. They will help protect your value against inflation, store your monetary value, and secures your retirement benefits.