The precious metals market is a source of financial growth that has been overlooked by most investors. Precious metals can be a valuable way to diversify your portfolio and hedge against inflation, but they are also very risky if you don’t know what you’re doing. Before investing in precious metals, it’s essential that you understand precisely how precious metal investments work.
Here are some six tips for getting started with precious metals investing:
1) Know the different types of precious metals. There are five main precious metals – gold, silver, platinum, palladium, and rhodium. Each one serves a specific purpose in an investor’s portfolio. Platinum is especially useful for those who want exposure to the precious metals market without moving away from major currencies.
2) Invest in physical precious metals, not futures. Futures contracts are especially risky because they rely on a third party to set the price at which you can buy or sell precious metals. If an investor is unable to make delivery of precious metal purchased on a futures contract, he is forced to take a loss. This risk exists for both sellers and buyers of precious metals through these contracts. Physical precious metals eliminate that risk entirely by allowing customers to take ownership and control over their precious metals investments from the start.
3) Consider your financial goals carefully before investing in precious metals. Investors who want their precious metal purchases to act as a hedge against inflation will be most interested in physical precious metals, like precious metal bullion. If you’re looking to buy precious metals simply as a form of portfolio diversification, however, precious metal futures could potentially be a good choice for you, if you are aware of the risks.
4) Understand the different storage options offered by precious metal dealers. The most basic form of precious metal purchases is through physical precious metals, or PMs. These are precious metals that have been cast into bars and coins; they are easy to store and trade with minimal cost. One drawback of physical precious metals is their lack of liquidity (transactions in bullion can take ten days or more). For investors who need direct access to precious metals for short-term trades, this is where gold futures contracts and silver futures contracts would come into play.
5) Consider precious metals as part of a diversified portfolio. When precious metals are purchased for their investment potential, they should be treated just like any other financial asset. They should be diversified so that you don’t put all your eggs in one basket; precious metal futures contracts can help investors achieve this goal by offering a way to trade precious metals on the stock market.
6) Have patience – precious metal prices often take time to recover from downturns. It can take years – sometimes even decades – for precious metal spot prices to catch up with their inflation-adjusted highs—and too many investors give up during times of low prices and sell out prematurely. Remember – no good financial decision was ever made reactively. Rather, take time to consider your options and make a proactive decision. Patience is critical when buying precious metals as an investment with income generation in mind
By keeping these six strategies in mind, you will be well on your way to a profitable venture of investing in precious metals!