How to Invest in Precious Metals: More Than Just Buying the Best Gold Stock
There’s no question that gold captures the imagination, that silver is a beautiful metal, and palladium is a very cool element. But how do these stack up when it comes to your portfolio? What should you look for in a precious metal investment? The best precious metal to invest in can be different for various investors, depending particularly on your temperament and what your investing goals are.
By Nancy Zambell, Chief Analyst Wall Street’s Best Digest, Cabot Wealth Network
There’s no question that gold captures the imagination, that silver is a beautiful metal, and palladium is a very cool element. But how do these stack up when it comes to your portfolio? What should you look for in a precious metal investment?
The best precious metal to invest in can be different for various investors, depending particularly on your temperament and what your investing goals are.
The best precious metal to invest in will provide a hedge against inflation. That is the most significant benefit of investing in precious metals. In times of financial volatility, the Commodities sector, which includes precious metals, is often a safe haven for investor’s capital.
There are various ways to invest in precious metals, and reasons to hold them in your portfolio.
Gold is almost always the first precious metal investors think about. However, there are other worthy commodities to consider, like silver, platinum, copper, and palladium, to name a few. Each precious metal has its inherent pros and cons.
There is a lot of volatility and no cash flow with precious metals, although they also have no credit risk and hold their strength in the face of inflation or currency devaluation.
It is also important to consider the geographical locations where mines exist. Areas of political unrest can lead to difficulties in mining and acquiring the precious metals needed to grow and profit.
Investing in mining companies is one way to take ownership in precious metals, but it also provides an opportunity that investing directly in commodities does not. For instance, investing directly in precious metals does not lead to cash flow for the investor. However, investing in a mining company can. More so, investing in the best mining companies can lead to dividends as well. That is not something that can be achieved by investing in precious metals directly.
ETFs also provide an opportunity to gain exposure to some of the best precious metals in your portfolio. There are ETFs that hold shares of gold and silver, as well as ETFs that hold a basket of mining companies. Both methods provide access to these precious metals. ETFs are historically liquid investments, so buying and selling them is often easier and less expensive than buying and selling individual precious metal stocks or the metals themselves.
Some investors turn to investing in physical gold through bullion or coins. This seems like a simplistic approach, as opposed to dealing with stocks, brokers, or futures. However, there is still a need to house the gold somewhere safe and secure.
You can, perhaps, keep small amounts of physical gold or silver at home. Still, for larger investments, it would be a smart idea to store these precious metals in an offsite location with proper security. Going this route will have added fees for storage.
Despite some of these drawbacks, the best precious metal to invest in can provide you with a hedge against inflation, making them a useful tool for diversifying your portfolio. However, because of their high volatility, it is crucial to invest in these commodities in a way that works best for your investing temperament.
Conservative-leaning investors should be careful with the amount of money they invest in precious metals. It would be a safe move to invest no more than 5% of one’s diversified portfolio into precious metals.
Silver Can Act as a Hedge Against Inflation
Is silver a good investment? It certainly makes for a beautiful watch. And no one can argue that winning silver in the Olympics isn’t nice. For investors, however, the question isn’t about wearing or winning silver; it’s about whether or not it will bring you a return on your investment.
There are a variety of reasons that investing in silver can be the right move for some investors, and there are various ways of investing in silver.
One of the first to consider is that silver can act as a hedge against inflation, especially in a dollar-based portfolio. This is the case because if the dollar gets weaker, then the value of precious metals tends to go up.
The nice thing about silver is that it holds value as a currency in its physical form. In situations where the markets are uncertain, and investors believe a crash is coming, silver is highly desirable. Bullion and silver coins become targeted investment in those cases.
Owning physical silver in coins or bullion has some additional value.
First, silver has a long-term use in the monetary system. Silver also has a myriad of applications from an industrial standpoint, further solidifying its tangible value.
Being a hard asset means there is no counterparty risk. No contract or promise needs to be fulfilled when the physical asset is in your possession. Silver is a viable commodity throughout the world, so its value remains, regardless of location.
Furthermore, owning physical silver has no default risk. This is not the case with the majority of other investments.
Silver ETFs can also work for investors when the markets are stable. If a person wants to invest in silver but doesn’t want to bother with coins or bullion, investing in a silver ETF may be the silver lining. Silver ETFs are typically made up of top silver mining companies and are diversified with their holdings.
For instance, an ETF like Global X Silver Miners ETF (SIL) includes silver mining companies from all over the world.
Other silver investments can be worthy buys if the mining stocks have strong balance sheets with low or manageable debt. It is even better when these companies have established mines with a historical record of producing. You will always want to ensure that your mining stock investments involve an experienced management team familiar with mining industry success.
Well-financed mining companies with experience and a record of success will be your best investment opportunities.
Silver is more ubiquitous than you might realize. Look around your house and you’ll likely find it in any number of items. The industrial markets involve the majority of silver’s usage. Silver is a highly conductive metal, making it valuable to use in many electronics, cell phones, batteries, solar panels, and biocides. Then, of course, there are the jewelry and silverware markets, where silver is also very popular.
Is silver a good investment? This unique metal has a lot of intrinsic value, from industrial use to monetary inclusion. Due to its versatility, there is no other precious metal quite like it.
Understanding Gold Futures Investing can Lead to Big Gains
You’ve heard of gold futures investing but what does it mean? Investors use a futures strategy for commodities. While we often think of oil as a commodity, all types of precious metals, including gold, fall into that category, as well.
So gold futures investing, or any futures investing, involves a contract between the buyer and the seller. The buyer agrees to buy gold from the seller on a future date at an agreed-upon price. Gold futures were first made available on the COMEX out of New York in 1974. Since then, the interest in gold has grown, and futures trading of this precious metal has become one of the primary strategies.
Is gold futures investing right for your portfolio? Dabbling in futures is not for every investor, but it can pay off for those who avoid the unique risks associated with this type of investing.
There are some advantages to futures investing, which are primarily geared towards investors who target returns through speculation.
An investor who opts into a futures contract is positioning themselves for an increase in the value of stocks. If the market ends up moving in the right direction, then the investment can be worth significantly more than the initial amount paid.
Investors also like the liquidity associated with futures investing. There are always buyers and sellers in the futures market. There are also futures markets with extended trading periods, so buying and selling can occur when other markets are closed.
There are even futures markets that trade 24 hours per day, seven days a week. Futures contracts tend to be highly liquid around the underlying asset’s current price, and although the prices carry a time and volatility premium, the price stability generally reflects that of the underlying asset.
Fees associated with futures have decreased due to competition among financial firms. If an investor uses an online trading service, the commission may only be a handful of dollars. Using a broker will be more expensive depending on the actual services rendered, but these expenses are still less than they have been in years past.
Futures can offer investors diversification within a portfolio and provide a hedge against risk in certain areas. This is especially the case with interest rates, currency rates, and commodity prices. For instance, gold futures investing helps make the gold market more efficient by providing increased liquidity in the price of gold without requiring delivery of physical gold bars or bullion.
Finally, there are some areas of investing where professionals or insiders have a hand over the competition due to internal knowledge or direct experience. That is not the case with commodities futures investing. Success with futures investing comes from price movement of the underlying asset, which cannot be diluted by an unexpected issuance of new shares or devalued by decisions made by a board of directors.
It’s important to realize that gold futures investing is not for everybody.
Investors focusing on speculation buy gold futures when they believe the price of gold will go up. These same investors will sell gold futures when they predict that the price of gold will go down.
You can make speculative guesses based on certain information, but overall, predictions are a big part of it. Some investors with a conservative approach prefer to avoid this kind of speculation and prefer to invest in gold through other means.
Some of these investments include gold mining companies that may already have a history of success, stock price increase, and even dividends. Investing in top gold mining companies can ultimately be more impactful in a portfolio than making guesses on how the gold market will move over time.
Consider Gold Mining ETFs for Low-Fee Gold Investing
Investors are sometimes better off investing in gold mining ETFs. Investing in gold mining ETFs can be a great way to hold investments in gold while taking advantage of lower fees through passive management
There are benefits to gold mining ETFs, including lower fees and a more straightforward method for investing.
The two biggest reasons to invest in gold mining ETFs come from the inherent structure of many ETF investments. Most ETF investors look for the passive management traditional ETFs. These ETFs track an index, like the S&P/TSX Global Gold Index, and don’t make many trades. Fewer trades lead to a lower management expense ratio (MER), leading to a cheaper investment than other stocks.
Furthermore, many gold mining ETFs come with internal diversification. These ETFs will involve holdings of gold mining production companies throughout the world. Top gold mining ETFs will include gold miners operating in politically and environmentally stable areas with successful mines already in production.
The lower expenses and diversification of ETFs can benefit many investors. It is also necessary to realize the costs associated with other types of gold investments. Investors who choose to buy gold coins or bullion will rarely, if ever, generate income from these investments. However, they could incur costs like paying to manage, store, or insure the gold.
How do you determine if gold mining ETFs are right for your portfolio? Investing in commodities in the resource sector can come with volatility. For this reason, it is essential to invest in well-established companies that have produced profits, as well as limiting your investing amounts accordingly. Conservative investors should avoid allocating more than 20% of their portfolio to the resource sector, while more aggressive investors can dedicate up to 30% of their portfolio to this sector.
It is best to invest in gold ETFs that include holdings of companies with steady production and reliable reserves. Top mining companies are beyond the planning stage, although they may have some associated junior mines, and they may also have hidden assets in the form of research and development.
Positive cash flow and a sound balance sheet are necessary to see from targeted mining investments. It’s also best to avoid penny mines and junior mines if they aren’t connected to a major mine that is already producing. Penny mines and junior mines sound attractive to some investors, but most of these investments will never show a profit.
Looking for investments with these characteristics will provide a degree of protection to your portfolio while allowing you to enjoy the benefits of investing in gold.
Silver ETFs Can Add Shine
Silver, once known as “poor man’s gold,” is actually a valuable precious metal all on its own, and for good reason. Silver has more industrial uses than gold. Jewelers and tableware makers use silver. You’ll find it in dental alloys, electrical contacts, and batteries. In other words, silver, and the best silver ETFs, can be a valuable addition to your portfolio.
You probably have silver in your home right now. Even if you don’t have silver rings, coins, necklaces, or watches, there’s also silver in LED lights and circuit boards.
There are many ways to invest in silver. You can buy individual stock in a silver mining company, or invest in silver directly, as bullion, coins, or certificates representing an interest in silver bullion. Then there are silver ETFs.
The reason some investors choose the best silver ETFs over other types of silver investments is twofold. The best silver ETFs involve an array of holdings, which offers a greater level of diversification. This diversification leads to lower risk levels, which is what investors in precious metals often want to see. The resource sector that these investments fall into is typically highly volatile, so investing in the best silver ETFs provides a hedge against that volatility.
This level of diversification also helps in making investment gains. If you buy stock in a single silver mining company, you have to choose wisely to profit. However, since the best silver ETFs have an array of holdings, there’s an opportunity to generate profits from all of the holdings. Lower risk and greater potential for gains are major reasons to choose the best silver ETFs.
Another reason to invest in top silver ETFs is the expenses associated with ETFs. Traditional ETFs are known to have lower management expense ratios (MERs) than other types of investments. The MER relates to the fund’s assets and how they are used in operating or administrative expenses. Due to passive management on many traditional ETFs, the MER is lower than with comparable investments like a mutual fund that’s actively managed. There are also fewer trades with traditional ETFs, adding to their lower expenses.
The term “best” can be somewhat subjective. What someone considers their best investment may not be the same to another investor, especially when considering investing temperament and goals.
Some investors think of the Global X Silver Miners ETF (SIL) as one of the best silver ETFs available on the market. This ETF tracks the Solactive Global Silver Miners Index. This ETF has been around for over ten years, and it follows over two dozen international firms that operate in various locations throughout the world. The top assets are performing in Canada, Mexico, and the United States. The ETF also has exposure to South Korea and Peru, as well.
The best silver ETFs can be a smart move over other types of precious metals investing. Not only do you get lower management fees and greater diversification, but you can avoid the hassle of providing storage or insurance for physical silver. The diversification leads to lower risk and a greater chance of hitting it big with one of the mining companies.
Investing in 3x Gold ETFs Can Lead to Big Payoffs
For investors, gold prices can be volatile, especially within short periods. This reality doesn’t always deter investors from holding some form of gold within their diversified portfolio. 3x gold ETFs are one such way.
Gold is a historical superstar in the world of precious metals. Gold coins have been used for thousands of years, dating back to around 800 B.C. Throughout various societies, gold has been used as a form of currency, placing a greater value on this commodity. These characteristics make it a hedge against both inflation and deflation. In times of economic or political uncertainty, gold shines, and 3x gold ETFs provide leverage to investors holding them.
There are many ways to invest in gold. Investors can buy gold coins or bullion to own physical gold. However, owning physical gold is not necessarily the best investment vehicle to generate returns. If an investor mainly buys gold coins as a hobby, then the return on investment isn’t the primary concern. Investors trying to generate returns from gold investing, however, should focus on another strategic approach, because physical gold comes with additional expenses like insurance or storage fees.
Gold stocks and gold ETFs are two of the most common methods for investing in gold to make a profit. Buying a single gold stock could be profitable if you select the right stock. Choose poorly, however, and you may be exposed to greater levels of market, sector, or company risk. On the other hand, a gold ETF tracks the value of the gold price and comes with diversification built in. A gold ETF can be an attractive investment for speculative investors, especially if the gold ETF in consideration provides low costs, tax efficiency, and stock-like features. These investments are also highly liquid, making it easy to trade them at will.
3x gold ETFs provide leveraged exposure to the gold futures market. This can pay off if you feel strongly about the direction of the gold market because these leveraged 3x gold ETFs can pay three times the daily or monthly return of gold prices. These ETFs utilize futures contracts, so investors who target futures investing often have a greater propensity towards these investments.
The tricky part of investing in 3x gold ETFs is that it’s only appropriate for short-term speculation. Over the long term, gold historically has maintained its value, but 3x gold ETFs are not designed to be long-term investment vehicles. Since gold is volatile in short-term markets, this makes investing in 3x gold ETFs harder. Remember, investors holding 3x gold ETFs have the chance to make three times the amount in a daily or monthly period, but they could also lose the same amount.
If you want to buy 3x gold ETFs, make sure you realize the risk and volatility you’ll endure. Stick with longer-term non-leveraged gold ETFs if the volatility and speculation are too much for your investing temperament.
Palladium ETFs Provide Greater Diversification
Imagine a precious metal that can turn toxic gases into less harmful substances. One might believe that such an element would be extremely valuable and useful. The reality is that this precious metal exists as palladium, symbolized as Pd on the periodic table of elements.
Palladium, and palladium ETFs, are popular investments because of the metal’s use in making catalytic converters in gas and hybrid vehicles.
Precious metals are inherently volatile, but palladium is a precious metal worth considering for those investors who can handle the risk. Palladium ETFs can even provide a less-risky investment vehicle than some stocks.
Palladium is known as a byproduct metal because it’s primarily extracted while mining for other metals. However, that hardly means it’s worthless. Even gold–the coveted superstar metal–is not as hot a commodity as palladium at times. Beyond its use in the exhaust systems of cars, palladium has other uses in dentistry and electronics, and jewelry makers use it as well.
And because the demand is greater than the supply, palladium investing makes sense. Due again to its status as a byproduct of platinum and nickel mining, the supply won’t increase much even as interest in palladium continues to rise.
Investing in palladium ETFs can make sense for some investors. Along with the supply and demand relationship, and its occasional status as the most expensive precious metal in the market, global demand is only growing. What does that mean for investors?
Palladium ETFs and investing in mining companies that extract palladium are better ideas than owning palladium outright as bullion. Stock in companies that mine palladium as a byproduct also provides access to other valuable precious metals. Palladium ETFs offer greater diversification than investing in individual stocks, so you may face lower risks with investments in palladium ETFs.
To find the best palladium ETFs, to start, you’ll want to find the palladium ETFs that have some of the top mining companies within the industry. Look for nickel and platinum mining companies, as that’s where you often find palladium, as well.
Look for industry prominence in mining as well as global diversification. Global diversification will help you avoid holding too much stock in one location that could fall victim to environmental or political instability.
It is also best to target traditional ETFs that have lower management expense ratios (MERs). Avoid high MERs unless the ETF has shown a long history of growth and profit. A low MER is one of the significant benefits of investing in ETFs over comparable mutual funds or stocks.
Traditional ETFs are passively managed, and they follow an index, so you won’t run into excessive trading in and out of the market with these ETFs. If conducting many trades is your strategic approach to investing, then ETFs are probably not your target investment vehicle.
Overall, stick with simple palladium ETFs with good diversification. You could even look at the individual stocks that make up the ETF and look into the history, management, and profit of those companies if you want to be sure about your investment decision.
It is always best to invest in companies whose management team is trustworthy and who have shown business success. Not feeling confident in a company’s ability to succeed and grow is a great reason to avoid investing in them.