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Precious Metals Worldwide: Information, Facts, and Investment Strategies

Written by: Daniel Gleich

One glance at the business headlines these days could be enough to make most investors panic. Factors like inflation, overseas conflicts, weaknesses in the global supply chain, and climbing oil prices can result in wild fluctuations in the financial markets and put your investment portfolio in danger. Diversity in investments is necessary to protect against these risks. A proven and relatively safe investment to guard against market volatility and inflation is precious metal. Precious metal doesn’t just refer to gold; investors also trade in platinum, palladium, and silver. Many investors have turned to precious metals to diversify their portfolios or simply out of curiosity. Not only are precious metals traded by investors and used in the making of jewelry, but they have numerous industrial and technological applications as well, especially palladium and platinum. Precious metals are typically measured in troy ounces: For example, a 1-ounce silver eagle coin is guaranteed to contain at least 0.999 troy ounces of pure silver. Precious metals may also be sold in bars measured in either ounces or kilograms. However, before investing any money in precious metals, it’s important to understand the nuts and bolts of the precious metals market and ensure that you are purchasing from a certified and reputable dealer.

The Four Precious Metals

Gold has been traded throughout recorded history and even before then, and it’s been used for currency for thousands of years. A timeless symbol of wealth and elegance, gold is typically what someone thinks of when they hear of investing in precious metal. The gold standard was used by the United States to back its currency for almost 200 years. Although gold is typically not used for everyday business transactions, many governments still hold large reserves of gold bullion. The United States famously stores some of its gold bullion at Fort Knox, as depicted in the classic James Bond film Goldfinger. Many mints continue to produce gold coins even if they are not being used as currency. Most popular among these coins are the American gold eagle coins, British gold sovereigns, and South African gold Krugerrands. These coins are widely popular with collectors, hobbyists, and investors alike. They typically come in weights of 1/10 ounce, 1/4 ounce, 1/2 ounce, 1 ounce, and 2 ounces.

Silver is also traded in coins and bars, although silver has a multitude of industrial applications as well. Investors have long seen silver as a hedge against inflation. And platinum has become a popular metal in recent decades due to its use in the catalytic converters of automobiles. It is also traded in bars and coins and used in jewelry. Palladium is another metal with uses in the automotive industry. The U.S. Mint produces palladium coins, and palladium bars can be purchased as well, although these are comparatively rare. Since platinum and palladium are used for industrial purposes more than other precious metals, the market and demand for them is different than that for gold.

How to Invest

There are a number of investment vehicles for precious metals. The simplest way is the physical purchase of bullion in the form of coins, bars, or rounds. Local coin shops and online bullion retailers are the two most popular places to start acquiring precious metals. Be sure to research any retailer before making a purchase and make sure they come highly rated. Coins are produced by government mints mostly for collectors and investors. These coins also have a face value. Private entities such as banks will produce metal bars that are not legal tender, but because the bars are typically produced in larger weights, such as 5 kilograms, buying these can be an efficient way to invest in large quantities of precious metals. Rounds are similar to coins but are not produced by a government mint and have no face value. They typically trade at a slightly lower price than coins.

Each precious metal is traded at a spot price. If gold is trading at $1,750 per ounce, someone might purchase a 1-ounce gold eagle coin at $50 over spot, meaning that they would pay $1800. Then, as with any investment, the investor would hold onto the gold until the spot price rises enough to yield a profit. As the quantity of metal being purchased rises, the premium over spot price being paid typically decreases, although this varies from retailer to retailer.

Investors can also invest in metals though investment accounts, such as an exchange-traded fund or a gold IRA. Gold ETFs are a popular way to invest in precious metals without physically purchasing the commodity. An ETF is traded similar to a stock. There are even ETFs that follow platinum trading. However, the risks of trading an ETF are similar to the risks of investing in the stock market. A gold IRA, meanwhile, does involve the purchase of physical gold, but it’s purchased and stored on your behalf as part of your retirement savings. Either way, it’s vital to understand your investment vehicle thoroughly before putting a significant amount of money into precious metals.