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The Black Book of Precious Metal Investing
Dear reader,
Jeff Bezos (Amazon) sold $6.7 billion in stocks. Larry Ellison (Oracle) sold $552 million of stock in his own company. Mark Zuckerberg (Facebook) and his charity sold $1.87 billion in stocks.
If billionaires and insiders are taking chips off this market, shouldn't you be too?
Benefits of Investing in Precious Metals
Investing in precious metals comes with an array of benefits over investing in stocks like having intrinsic value, high liquidity levels, allowing portfolio diversification, and serving as a hedge against inflation.
1. Hedge Against Inflation
One of the most popular merits of precious metal investing is that they act hedge against inflation.
Precious metals such as gold are traditionally regarded as a safe hedge against inflation.
Inflation is often the product of global financial turmoil and poor monetary policies, which reduces a currency's purchasing power over a given period.
The by-product of this is an increase in the prices of goods and services.
In such situations, valuable metals such as gold are widely regarded as possessing an inflationary hedge or protection because the price in global currencies like the dollar is variable.
Therefore, if a currency loses its value due to the impacts of inflations, the prices of precious metals such as gold tend to become more expensive.
Therefore, the worth of the gold in your portfolio will change or fluctuate in value due to uncertainties caused by inflation.
Rather, it would serve as a hedge or protection against the falling currency.
As inflation rises and eliminates the value of a traditional currency, the cost or price of each ounce of gold will increase.
This means that you would have the same purchasing power, and the value of your investments would remain intact.
In addition, rising inflationary levels often result in an increased demand for valuable metals.
During such times, you can sell your precious metals for higher prices while recouping the returns on your investment.
3. High Liquidity
One of the most important factors investors consider while investing in an asset is the potential returns they stand to make from that investment.
Another benefit of investing in precious metals is their high liquidity ratio.
Retirement investors who look at the potential long-term value of their assets typically consider assets with high liquidity, which precious metals are traditionally known to offer.
Unlike other asset classes that take time to mature and sell, precious metals can be sold at any point and for a high value to ever-willing buyers.
They provide owners with instant liquidity, and you can also convert your precious metals into any fiat of your choice when and where you elect to do so.
Metals such as silver and gold can be easily converted into cash without losing value during the conversion process.
This is primarily because of the considerable number of investors and buyers who actively purchase and sell those commodities across the globe.
3. Portfolio Diversification
Another benefit of investing in precious metals is portfolio diversification.
By including precious metals in the list of your portfolio holdings, you get to diversify the value of your holdings.
A diversified portfolio lowers the general risks connected to your investment while generating higher returns on your investment in the long run.
In addition, including precious metals like silver and gold in your portfolio lowers the effects of market volatility.
Market occurrences such as rising and falling stock prices are not felt uniformly in your portfolio due to portfolio diversification.
This is why it is recommended that investors should not put all their eggs in one basket.
Furthermore, this is why it is crucial to include metals in your portfolio to help protect your investments against any negative market occurrence.
Traditionally, the value of metals such as silver and gold mainly increases during stock market crashes.
For instance, between 2005 and 2020, the value and price of gold have risen by over 330%, and in most cases, these rises occur during colossal stock market crashes.
4. Scarcity
It is a basic rule in economics that scarcity drives an increase in an asset's value.
Precious metals such as silver and gold are rare resources and are finite.
There are limited supplies of gold and other precious metals in the world, and just about 20% of the earth's gold is left unmined.
Therefore, investing in precious metals gives investors a unique opportunity to own valuable assets that can place them in a protected and elite position.
This scarcity, alongside the ever-growing demand for precious metals, makes them an excellent investment choice for anyone interested in earning good investment returns.
5. Physical and Portable Assets
Precious metals such as gold and silver are physical and tangible assets.
Once you have possession of them, they become yours to keep.
Currencies, stocks, and cryptocurrencies, on the other hand, are stored in databases and are mainly intangible.
This makes them prone to theft resulting from incidents such as hacking.
This isn't the case for precious metals, which are tangible and portable and can be moved around from one location to another.
Their portability allows you to transfer or move them anywhere in the world without facing charges, fees, taxes, or governmental interferences.
In addition, portable assets like silver and gold make it easy for investors to transfer their wealth to their heirs.
6. Universal Usage
Among most precious metals, gold and silver are utilized in different products, including electronics, phones, silverware, jewelry, cars, and batteries.
In addition, these metals are very valuable in large-scale manufacturing industries, ranging from products with medical applications and even solar panels.
Therefore, because of their valuable and universal usage within the production and manufacturing industries, they will always be in high demand in the market.
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The Challenges of Investing in Precious Metals
Understanding how to invest in precious metals can be challenging because of the headwinds against you.
Commodities, including precious metals, do not generate cash flows like most profitable businesses or like most interest-paying bonds do.
Instead, they remain dormant with hopes of prices going up.
Aside from silver and gold, which are exceptional at holding their value over extended periods against inflation, most precious metals do not possess this capacity.
Renowned investor Warren Buffet once noted that precious metals are riddled with the challenges like their ability to naturally generate profit like most assets and the transaction costs related to precious metal investing.
In addition, costs like shipping, risk, and storage costs are some of the challenges that most investors looking to venture into precious metal investing face.
Below are some of the top challenges of precious metal investing:
1. Storage Challenges
The oldest method for investing in precious metals is purchasing them physically in bars or coins.
This has the advantage of being a safe and less complex way of investing in precious metals.
However, it raises the challenge of where to store your precious metals safely.
Unlike other investment assets like stocks and bonds, which do not bear storage challenges, you will need to store your precious metals safely and securely.
Bullion storage involves payments of charges to store, or you risk loss or theft if you store them at your home.
Using a safe deposit box at your bank or a storage facility involves paying an ongoing charge.
Aside from the storage problem, you also have to consider the security and safety of the metals.
If you preserve all your metals in the house, you risk losing them during a natural disaster, fire outbreak, or robbery.
Your home safe is not immune either; they only give you time since they can be broken during a robbery, or you could be required to open it during such an attack.
Keeping them in a safe deposit box at your bank removes them from your home and brings other problems.
Firstly, contents in bank boxes are not insured against any adverse occurrences.
Most insurances only cover bank deposits and not box deposits.
Additionally, if you urgently need your precious metals, but your bank is closed for the holiday or weekend, you become out of luck.
Keeping your metals at hand is advised for cases of emergencies, so they provide you with instant access to cash.
To overcome this challenge, experts recommend making use of professional storage services.
It is outside the banking system and helps remove your metals from the house while keeping them insured.
2. Charges and Commissions
Like every other investment asset, buying precious metals involves the payment of commissions and charges.
These charges are typically higher than the amount investors pay to purchase bonds or stocks, though they are lower than real estate costs.
Most precious metals purchases are conducted by companies in the middle who take profits.
These companies purchase precious metals at wholesale prices and then sell them at retail prices.
There are also other associated costs like shipping costs, the expenses for storage and security, and the risks of loss or theft.
If you invest with ETFs that hold precious metals, they provide an expense ratio that covers the security and every administrative cost involved in managing and holding your metals.
For example, silver is costlier than gold because it costs just as much to produce gold, although it sells for less than gold.
Additionally, coins are conventionally more expensive than bars because of their more intricate designs.
Premiums paid on numismatic products or rare coins that are considerably higher because they are collectibles.
It is therefore advisable to avoid this class of precious metals unless you are a collector because of their expensive premium charges.
However, online dealers typically charge lesser fees than local coin shops since most online dealers waive insurance and shipping charges with a minimum purchase.
3. They Do not Generate Interests or Incomes
Another downside to owning precious metals is that they do not pay dividends or interests.
On the other hand, bonds and stocks are known for paying interests or dividends, while real estates generate rental incomes, their worth lies in their intrinsic value, which is only realized upon being sold to a buyer.
On the other hand, bonds and stocks are known for paying interests or dividends, while real estates generate rental incomes, their worth lies in their intrinsic value, which is only realized upon being sold to a buyer.
How to Invest in Valuable Metals
Precious metals are scarce metals that hold high economic value.
They are valuable because of their industrial usage, rarity, and substantial investment potential.
Notable precious metals include silver, platinum, palladium, and gold.
As an investor, there are several ways you can invest in precious metals, and highlighted below are the best ways to invest in precious metals:
1. Physical Form
One of the ways to invest in precious metals is by purchasing and holding them as an investment.
Retail investors can invest in various selections and varieties of precious metals, such as coins, bars, and jewelry, made from precious metals.
These physical precious metal investments grow in value as the price of the underlying precious metals they are made from increases.
You can purchase these metals from local dealers; however, in the case of gold and silver, it is advisable to buy bullion.
Bullion is a term used to refer to bulk or large quantities of precious metals such as 10 oz silver bars available at different dealers.
This way, investors get more metal at a reduced price per ounce instead of buying coins.
However, buying precious metals in their physical form comes with the challenges associated with storage.
You can, however, store them in your vault or bank for safekeeping.
he merit of having physical possession of precious metals is the ease of accessibility during economic and political turmoil.
You can also transfer precious physical metals like gold with total privacy.
2. Commodity ETFs
Another way you can invest in precious metals is through an exchange-traded fund or ETF.
An ETF is designed to hold an array of assets such as bonds or stocks to monitor a particular index's performance; commodity ETFs also do this for precious metals.
Commodity exchange-traded funds are highly liquid to purchase and sell because they trade on every major exchange.
Due to the volatile nature of precious metals and the difficulty associated with purchasing some of them, like gold, in small quantities, you can easily automate your purchases using an ETF.
The disadvantage of ETF investing is the costs associated with the practice, such as management charges.
The most popular gold ETF is the SPDR Gold Trust (GLD) which charges relatively low fees considering investors do not have to pay for physically keeping the gold.
However, investing in an exchange-traded fund does not provide investors with physical access to the precious metal.
3. Mining Stocks
4. Royalty Companies
Precious metals like silver and gold are highly volatile and risky to invest in, and this is why it is best to work with royalty companies that help you bear the burdens of some of those risks.
These companies offer investors upfront cash in return for being paid with precious metals at prices way below market value.
This technique for financing debt using commodities like precious metals allows the debts to grow with the costs of precious metals.
The method is less risky; unfortunately, there are not many publicly-traded precious metal royalty firms.
A future contract is another method used in investing in precious metals.
Precious Metals to Invest In
Many precious metals are available for investing, each with differing levels of investment potential. Below are some of the best precious metals worth investing on:
1. Gold
The most popular precious metal, and foremost of all, is gold.
Gold is renowned for its distinct durability and ability to withstand rust or corrosion.
It is also highly malleable and capable of conducting electricity and heat.
It is also utilized in different industrial applications such as electronics and dentistry, but its most famous and principal application lies in the jewelry industry as a form of currency.
Gold trades majorly as a function of sentiment.
The forces of demand and supply less impact its value because new gold mining supplies are colossally outweighed by the vast size of above-surface hoarded gold supplies.
Only about 20% of the earth's gold supply is estimated to remain unmined.
Therefore, when holders or hoarders feel like selling their stock, the price of gold declines, and when they want to buy, new gold supplies are quickly absorbed into the market, further driving gold prices higher.
Different factors account for the increased demand to hoard gold, and they include:
- Inflation: Falling rates of returns in bonds, equity, and real estate markets lead investors to flock to gold as a hedge against inflation due to its intrinsic value.
- Political crisis or wars: Political crises and wars typically lead people to hoard gold supplies.
- Systemic economic concerns: When cash and banks are believed to be unstable or questionable, gold become sought as a safe store of value.
The fundamental techniques used in valuing gold are interest rates and gold and money supply.
2. Silver
The price of silver, unlike gold, often oscillates between its believed role as an industrial metal and a store of value.
This is why the price changes in the silver industry are more unstable than in gold.
Therefore, while silver trades majorly in line with gold as a metal to be hoarded, its industrial demand and supply equation plays a strong role in its price.
Moreover, this equation has typically changed due to recent innovations, including:
- The introduction of the digital camera has influenced the dominance of silver in the photography and movie industry.
- The use of silver in superconductor application, microcircuit markets, and batteries.
It remains unclear the extent these recent developments will impact the non-investment demand for silver.
One significant fact, however, remains: the price of silver is influenced by its application and not its usage as a store of value.
3. Platinum
Platinum, like silver and gold, is traded around the global commodities markets.
It conventionally generates higher prices than gold during political stability routine market period since it is rarer.
However, other factors influence the prices of platinum, and they include:
- If the firm is witnessing a rough patch that has broken your initial investment projections or compromised the reasons you originally bought the stocks, you might wish to sell your stocks. Broken forecasts on stocks can be caused by significant missteps by the management team, disruption by the emergence of a lower-priced competitor, or a long-term decline in their pricing capacity.
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Platinum is considered a form of industrial metal like silver. The highest demand for platinum arises from automotive catalysts used to lower the dangers of emission.
- Platinum's prices are primarily determined by production numbers and auto sales.
3. Platinum
Palladium is one of the lesser-known types of precious metals with many industrial uses.
Palladium is a silvery and shiny metal employed in different types of production processes, especially in industrial and electronics products.
It is also used in medicine, jewelry, groundwater treatments, dentistry, and chemical applications.
The vast majority of palladium mines are found in South Africa, Russia, Canada, and the United States.
Conclusion
Investing in precious metals is essential because they are a distinct class of assets from bonds and stocks and possess unique opportunities and risks.
This makes them especially suitable for portfolio diversification and while there are many ways you can invest in precious metals, always ensure that any method you adopt is suited to your investment goals and objectives.
Resources and References:
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Benefits of Investing in Precious Metals
https://www.bellevuerarecoins.com/investing-in-precious-metals/
https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#:~:text=Investing%20in%20precious%20metals%20comes,portfolio%2C%20and%20ease%20of%20purchasing.
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The Challenges of Investing in Precious Metals
https://www.forbes.com/sites/theyec/2020/02/26/the-beginners-guide-to-investing-in-precious-metals/?sh=518b2edf3f4f
https://goldsilver.com/blog/the-pros-and-cons-of-investing-in-physical-precious-metals/
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How to Invest in Valuable Metals
https://www.inventiva.co.in/stories/an-introduction-to-precious-metal/
https://www.lynalden.com/precious-metals-investing/
expert@goldinvestmentguides.com | 265 Hackensack St Unit #1064, Wood Ridge, NJ 07075.
*This manual is for informational and entertainment purposes only. The author is not an investment adviser, financial adviser, or broker, and the material contained herein is not intended as investment advice. If you wish to obtain personalized investment advice, you should consult with a Certified Financial Planner (CFP). All statements made in this manual are based on the author's own opinion. Neither the author or the publisher warrants or assume any responsibility for the accuracy of the statements or information contained in this manual, and specifically disclaims the accuracy of any data, including stock prices and stock performance histories. No mention of a particular security or instrument herein constitutes a recommendation to buy or sell that or any security or instrument, nor does it mean that any particular security, instrument, portfolio of securities, transaction or investment strategy is suitable for any specific individual. Neither the author or the publisher, can assess, verify, or guarantee the accuracy, adequacy, or completeness of any information, the suitability or profitability of any particular investment or methodology, or the potential value of any investment or informational source. READERS BEAR THE SOLE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS. NEITHER THE AUTHOR OR THE PUBLISHER IS RESPONSIBLE FOR ANY LOSSES DUE TO INVESTMENT DECISIONS MADE BASED ON INFORMATION PROVIDED HEREIN. At the time of writing, neither the author or the publisher has a position in any of the stocks mentioned in this manual. By proceeding with reading this course, you affirm that you have read and understand the above disclaimer.
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