In the past, precious metals were seen as a form of currency and now they are known for their investment and industrial purposes. It is essential to consider the conditions that influence supply, demand and prices for each valuable metal before making a financial decision. Different investors have different needs, so it is necessary to determine which one is the most suitable for investment.
Gold, silver, platinum and palladium have their respective advantages, making them attractive to different investors. Each metal has unique characteristics regarding its value, long-term performance, liquidity and risk.
Therefore, choosing the best precious metal investment depends on an individual's investment goals, risk tolerance and financial situation. This article will offer an overview of the best precious metal investments and provide information to help investors make informed decisions.
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An Overview of Precious Metals Investment
Precious metals have been valued since the beginning of recorded history. Precious metals, such as gold and silver, have been used as a form of currency for centuries and were an integral part of the world's trading systems. Gold has been used as a form of currency since the ancient Egyptians introduced it in about 3000 B.C. Silver was also used as a form of currency during this time, although not as common as gold.
Throughout the Middle Ages, precious metals were widely accepted as currency throughout Europe. Gold and silver coins, known as marks and florins, were used as money in England and other parts of Europe. Coins made from precious metals were also used extensively in Asia and the Middle East.
In the early modern period, precious metals were used as the basis of national currencies. After establishing the gold standard in 1875, many countries adopted the gold standard in which their currencies were linked to the value of gold. This allowed governments to back their currencies with gold, making them more valuable and stable than before.
By the end of World War I, most countries had dropped the gold standard and switched to fiat currency, which is not backed by any physical commodity. However, precious metals continue to be used in jewelry and certain industries, such as electronics and dentistry. Gold has recently become a popular investment option due to its perceived haven status.
Benefits of Investing in Precious Metals
There are several distinct benefits to investing in precious metals, including:
Types of Precious Metals
Here is a quick rundown of the many precious metal investments available to assist you in making the best selections for your investment portfolio.
A long-standing favorite of precious metals investors, gold has been used as a store of value for thousands of years. Gold is an investment that tends to hold its value well during economic slowdowns and can ride out major recessions quite well. Gold is also an excellent hedge compared to cash investments during periods of high inflation.
Silver is second only to gold in the realm of precious metal investments. Because silver is less expensive than gold, it's possible to begin investing with a modest sum and gradually grow your holdings over time.
Another factor helping silver's value is its vast industrial application, especially in the rapidly expanding solar energy industry.
Silver's lower price relative to other precious metals might make it difficult to store, but its benefits outweigh the cost. Since the value of gold, platinum and palladium per ounce is considerably higher than silver, the amount of space needed to store silver will be far greater than that needed to store the other precious metals.
Platinum, while essential in many industries (such as auto catalytic converters and jewelry), is not as popular a precious metal for investing as gold or silver. Despite that, this metal has the potential to be a lucrative financial holding. While historically more expensive than gold, platinum has lagged behind the yellow metal in recent years.
The primary benefit of platinum is that, in contrast to silver and gold, its price doesn't tend to soar before a market crash because it isn't a popular investment metal. Its pricing, however, is more consistent regardless of market conditions.
Palladium's properties and the market for it are quite close to those of platinum. While platinum is more established in the jewelry industry, palladium is increasingly employed in car production. The prices of these two metals tend to move together.
Platinum and palladium are quite similar, although investors in precious metals sometimes employ the latter to increase portfolio diversity.
Copper has several commercial applications in industry, manufacturing and the arts. Like other precious metals, copper is in high demand but in short supply.
A growing number of investors are purchasing copper bullion, coins and bars to protect their holdings from the continued depreciation of other currencies, even though copper is generally neglected as an investment compared to gold and silver.
Methods of Investing in Precious Metals
There are several methods of investing in precious metals. Below are the most popular ways you can invest in precious metals.
Investing in physical precious metals involves the purchase of actual coins, bullion or bars of gold, silver, platinum and palladium. These physical items can be purchased from dealers, such as coin shops, banks and mints. When investing in physical precious metals, it is important to consider factors such as the item's purity, quality, condition, manufacturer and price.
Physical precious metals are typically bought in small, fractional sizes and come in many forms, including coins, rounds and bars. Coins, the most common form of physical precious metal, are available in many sizes and denominations.
Rounds, similar to coins, are privately minted and typically come in larger sizes. Bars are the least expensive form of physical precious metal and come in various weights, sizes and denominations.
When purchasing physical precious metals, it is important to understand that there is more than just the metal value to consider. The condition, quality and even the source of the metal can affect the value. Also, buyers should consider potential storage costs, taxes or fees associated with the purchase.
Exchange-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are a type of security that track a basket of assets, such as stocks, bonds and commodities and can be bought and sold like any other stock on a stock exchange. Precious metal ETFs are a prevalent form of ETF investing because they allow investors to diversify their portfolios with exposure to multiple metals without buying and storing them physically.
When it comes to ETFs, investors do not own the physical asset; instead, they own a security that tracks the underlying asset's performance. ETFs are created when a fund manager collects the components of the ETF, such as gold, silver, platinum or palladium and issues shares of the ETF on a stock exchange. These shares are then bought and sold by investors looking to gain indirect exposure to the underlying asset.
The fund manager manages the ETF and takes care of administrative tasks such as buying and selling the underlying assets and maintaining the portfolio. As with any stock, the price of an ETF will fluctuate based on demand and supply and is often closely linked to the underlying asset's price.
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase a portfolio of securities. Mutual funds provide an easy way for investors to diversify their investments by investing in multiple types of securities in one fund.
When investing in precious metals through a mutual fund, investors can either buy a mutual fund specializing in physical precious metals or purchase shares of a mutual fund that invests in mining or refining companies. Physical precious metal mutual funds invest in gold and silver coins and bullion bars. In contrast, mining and refining company mutual funds invest in stocks of companies that produce gold and silver.
Mutual funds have several advantages over other investment options, such as convenience and diversification. For example, mutual funds allow investors to invest a small amount of money into a broad range of assets, which reduces the risk of any single asset performing poorly. Additionally, mutual funds are generally managed by experienced professionals with access to a wide range of investment information, allowing them to make informed decisions about which assets to buy and sell.
Mining stocks are a form of investment that allows investors to gain exposure to the price movements of precious metals without owning the physical metal itself. Mining stocks are shares of ownership in a company that owns or controls one or more mines and the company's profits are directly linked to the performance of the underlying mines—the better the mines do, the better the stock will perform.
Mining stocks can provide investors with an opportunity to benefit from the increasing demand for gold, silver, platinum and other precious metals. The value of the stock is based on the revenues and profits generated from the mining operations, as well as the size and quality of the reserves held by the company. When the price of the underlying metal rises, the value of the stock also increases.
In addition to exposing investors to the potential rewards of owning a mine, investing in mining stocks also allows them to diversify their portfolios and reduce risk. Mining stocks may have different levels of volatility than other assets, which can help to balance out the risks associated with a traditional portfolio.
Futures contracts are agreements between parties to buy or sell a particular asset at a predetermined time. Regarding investing in precious metals, futures contracts allow investors to gain exposure to metals' prices without owning them physically.
A futures contract typically includes information such as the asset's price, the amount of the asset and the delivery date. On the delivery date, the buyer is obligated to purchase the asset from the seller at the agreed-upon price. If the asset price moves up or down over the contract, the investor may close out their position early and realize a profit or loss.
Futures contracts provide investors with greater liquidity than physical ownership, as futures contracts can be bought and sold easily. Furthermore, futures contracts are highly leveraged and typically require lower margin requirements than other forms of trading.
Precious metal certificates are an investment that allows investors to purchase and hold a certain amount of physical precious metal without storing it. These certificates are backed by the issuing entity, usually a bank or financial institution and represent ownership of the underlying physical asset, such as gold or silver.
When an investor purchases a certificate, they purchase a contract that guarantees the delivery of a certain weight and purity of the specified precious metal at any time. The certificate also serves as proof of ownership, allowing the investor to redeem their metal for cash or use it as collateral for loans.
The primary benefit of investing in certified precious metals is that it eliminates the need for storage and security costs associated with physical ownership. Furthermore, the certificates are often more cost-efficient than buying the physical metal since there are no transport costs and taxes and duties on the metal itself.
Certificates can be purchased from banks, brokerages, other financial institutions and online dealers. They can also be traded on the open market, allowing investors to quickly and easily buy and sell their holdings.
Best Precious Metal to Invest In: Gold?
Gold is the most well-known precious metal and it's easy to understand why investors find it valuable.
Gold is widely considered the best precious metal to invest in due to its long-term stability, rarity and desirability. Gold has been used as a store of value for thousands of years and is seen as an excellent way to diversify a portfolio.
The price of gold stays relatively stable over time because it is a rare commodity highly sought after by people worldwide. Its scarcity and desirability make it an attractive asset for investors.
Unlike stocks and bonds, which can be affected by various factors, including economic changes, political events, market speculation and more, gold is not subject to the same short-term fluctuations. This makes it an ideal investment for long-term investors who want to preserve their wealth.
Gold is also a hedge against inflation, as its price tends to rise when inflation is high. This means that it can help protect an investor's portfolio from the erosion of purchasing power during periods of high inflation.
Furthermore, gold can be used to diversify a portfolio, as it doesn't move in lockstep with other assets, like stocks and bonds. If the stock market crashes, gold can provide a cushion against losses.
Gold is highly liquid, meaning it can easily be bought and sold, making it easy to turn into cash in an emergency. Additionally, investing in gold is relatively simple, as it can be purchased through coins, bars or ETFs.
Furthermore, many people now invest in gold through a gold Individual Retirement Account (IRA). A gold IRA allows investors to purchase physical gold and other precious metals, such as silver and platinum and store them in a tax-advantaged retirement account.
This investment offers many benefits, including safety against market volatility, potential growth and tax incentives. Many investors opt to invest in a gold IRA to protect their retirement savings against economic uncertainty.
The best precious metal investment depends on various factors including market conditions, risk tolerance and financial goals. Gold has traditionally been a popular choice for investors because it is seen as a haven asset that retains its value over time.
Silver is often seen as the more volatile option but can provide a greater return when prices rise. Platinum and palladium are less common investments but may be attractive to those looking for diversification.
Gold is an excellent option for those looking to make a precious metal investment. Its long track record of stability, liquidity and performance makes it an attractive asset for many investors. While other metals may offer different advantages, gold remains the go-to choice for those seeking a safe and reliable way to invest in precious metals.
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