Should You Invest in Precious Metals

Tuesday, August 7, 2012

Should You Invest in Precious Metals

There's something magical about the idea of precious metals. The sound of the names alone -- gold, silver, platinum -- conjures up images of untold riches. The hefty smoothness of ingots, the clink of shimmering coins echoing their worth dances in the pictures of our minds. As children, we saw pirates' booty, overflowing treasure chests. We became young Jim Hawkins watching for Black Dog in every corner, convinced that the prized map to Treasure Island would lead us to jewels and doubloons. 

Now that we've traded the fantasies of childhood for the realities of monetary gain, treasure becomes earnings we've worked for, and the threat of Black Dog is an economic downturn. Savings, retirement funds, investment options are the tangibles we think about. However, in the case of investment, the lure of glittering treasure can still exist. If you're considering investing in precious metals, treat it as all investments. Study and weigh the variables that inherently comprise the pros and cons of investing in this sector. Ask pointed questions of yourself and experts.

Which Metal?

The four main precious metals are gold, silver, platinum and palladium. The value of each is generally determined by its popularity.

Gold is historically traded the most. Several factors contribute to its popular position. Primarily, it is a monetary metal used as currency in many countries. There is more gold coinage in use than any other type of precious metal. It is also a major industrial commodity.

• Silver is the least expensive of the precious metals. Mined as a by-product of copper, its use is highly prized in industry and technology.

• Platinum is scarcer than either gold or silver. Known as the hi-tech metal, it is generally the most volatile of all the precious metals in terms of price.

• Palladium is also called a hi-tech metal and is one of the most anti-corrosive elements known. Used as an industrial metal, it is often alloyed with platinum.

Basic knowledge of how these metals are used may give you an edge in making your choice. Also, researching the locations of major mines and assessing possible global impacts will help. Once you've selected your metal, you'll need to decide in which form you'll hold it.

Stock Shares or Hard Assets?

Assume that you, being the more cautious type, immediately bypass the highly-speculative path of investment in mining companies. You're going to consider stocks or mutual funds versus the hard assets of bullion or numismatics. If you focus on stocks, you may want to ponder the merits of a mutual fund rather than individual shares; professional management and more diversity will be the advantages.

Should you prefer the tangible precious metals, will it be bullion (bars) or numismatics (coin collections)? Will you hold the actual hard assets or possess certificates of ownership? Physical storage space and security measures will be your main considerations.

Ultimately, precious metals are an excellent hedge against inflation. When their prices rise, you can resell them for a handsome profit. Nevertheless, allow them no more than 10 percent of your portfolio. As a sole investment, precious metals are highly speculative. Remember, their value is directly proportional to the rising price per ounce. Alternatively, traditional investments -- equitable bonds, pooled funds, 401K, Roth IRA, etc. -- will regularly produce additional income sources via dividends and interest. A well-diversified portfolio with the right asset allocation for your needs is the most judicious choice.


Karl Stockton also writes on auto insurance.

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