Updated November 21, 2022 –Precious metal prices declined at the end of 2021, the World Bank reports. Although gold prices, in particular, have lost strength in recent months, pandemic-related uncertainties are expected to push prices higher again due to “safe-haven demand”. Indeed, offering intrinsic value, precious metals are a valuable investment in times of economic uncertainty. They’re also a great way to diversify your portfolio while reducing your exposure to stock market volatility. If you’re new to precious metal investing, it’s important to research your options, along with the risks and benefits, so you can decide the right path for you.
Investing in gold
Gold has been a valuable investment since ancient times: it’s durable, resistant to corrosion, malleable, and conducts electricity and heat. Primarily, investing in gold is beneficial as it’s an asset that maintains its value or even appreciates in value in line with the cost of living — which therefore makes gold an excellent hedge against inflation. It’s a low-risk investment that trades at a fairly slow pace with minimal fluctuation. In fact, gold is considered a safe investment even in times of financial or political uncertainty; it maintains its value and works as a hedge against disaster.
Investing in silver
Although silver is a more volatile investment than gold, it’s a cheaper alternative with its own set of benefits. Like gold, silver also functions as a hedge against inflation, which maintains its value over the long term. However, since silver is also an industrial metal in addition to an investment metal, other applicational factors influence its value and outlook. In particular, silver is used in batteries, jewelry, medical equipment, and even green energy and electric vehicles. As such, investing in silver can be an effective way to benefit from the tech innovations in the green energy movement.
Investing in platinum
A rare precious metal, the value of platinum is largely influenced by supply and demand. Most of the world’s platinum is sourced from Russia and South Africa and its value is therefore influenced by the political stability of those countries (a stable government decreases the value). Additionally, since platinum is typically purchased in U.S. dollars, platinum supply tends to drop when the dollar’s weak — which in turn ups its value. As such, current world events alter the risks and benefits of this type of investment. For example, platinum demand rose at the tailend of 2020 as the worldwide economy started recovering post-lockdown. At the same time, an outage at a South African processing plant caused the platinum supply to drop. High demand and short supply resulted in platinum prices increasing — even while gold prices fell. Ultimately, platinum is a volatile investment best avoided by beginners.
Precious metals investment options
Investing in physical gold bullion is one of the easiest ways to jump into the world of precious metal investing. By investing in coins and bars you have direct ownership over the commodity, United States Gold Bureau explains. Just be sure to have a safe or safety deposit box for secure storage. Bullion is, however, taxed as a collectible. You’ll need to pay a capital gains tax of 28% on your net profit from each bullion sale if it’s held for longer than twelve months. Bullion held for under twelve months, on the other hand, is taxed as regular income. And, if you don’t want the responsibility of transportation and storage, certificates provide an alternative way of investing in physical gold. Keep in mind, however, that certificates are merely paper and won’t facilitate valuable exchanges in times of emergency.
Alternatively, exchange-traded funds (ETFs) are an easy and liquid method of purchasing and selling precious metals. ETFs work like individual stocks and are traded on an exchange in the same way. However, with ETFs, you don’t actually own the precious metal. ETFs are popularly used by investors to hedge against political and economic uncertainty, in addition to currency debasement.
Ultimately, investing in precious metals always comes at a degree of risk. As always with investing, it’s important to get clear on your goals and risk profile first. You’ll then have a better chance of making the right investments to harness volatility and grow your wealth.
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