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Are Precious Metals Investments Worth Their Weight in Gold?

Are Precious Metals Investments Worth Their Weight in Gold?

With the constant ups and downs of the stock market today, there are many investors who are seeking alternatives that will offer the opportunity for growth, yet at the same time, provide a lesser amount of risk than traditional stocks and mutual funds. This “best of both worlds” may be found by investing in gold and other precious metals.

What Makes Gold a Solid Investment?

There are numerous reasons why investors should consider gold and precious metals for at least a portion of their overall portfolio. These factors include:

  • Potential for Growth – Throughout the years, gold and metals have been sought out by investors for their high potential for growth. This opportunity for positive return is anticipated to continue in the future.
  • Demand – There is a great deal of demand for metals as well – particularly gold. This precious metal is used in numerous different industries such as jewelry and electronics. As with other products and services, when demand is high, the value will also tend to increase as well.
  • Scarcity – Metals can also be scarce – inflating their price and value. Due in large part to being a tangible item, gold assets, for example, are only available in a finite amount. When items are scarce, their prices typically increase. Because current worldwide gold production is not matching this metal’s consumption, value is expected to raise dramatically over the short- and long-term time horizons.
  • Hedge Against Inflation – Metals – gold in particular – can also work as a nice hedge against inflation. One reason for this is because gold has the ability to maintain, and even increase, its value no matter what is happening in the economy or financial markets. Gold can also appreciate during times when the U.S. dollar is weak.

How to Invest in Gold and Precious Metals

Once an investor has determined that gold and other precious metals make sense in their portfolio, there are several ways that these assets may be invested in, such as:

  • Coins - One of the most popular – and easiest – ways to invest in gold and other precious metals is through the purchase of coins. Some of the top investments in this area include the American Eagle, the Canadian Maple Leaf, and the South African Krugerrand. Investing in coins allows for ease of transportation and storage, as well as a way to obtain fast liquidity if the investor needs to sell quickly. Coins may be purchased through a physical metals dealer, as well as through one of the many online metals dealers that can be found on the Internet.
  • Bullion - Metals can also be purchased in the form of bullion, with the most popular form being in bars. Typically, bars can range in weight from between one gram and 400 ounces.
  • Certificates – Gold and metals certificates may be purchased for investment as well. A certificate will generally represent the investor’s ownership of bullion that is held by a financial institution.
  • Jewelry - Gold and other precious metals can also be invested in by way of purchasing jewelry. This format actually represents the largest consumption of gold each year, and in many areas of the world, the purchase of gold and other jewelry also signifies a primary method of savings.

In addition to the purchase of tangible metals, investors may also opt to purchase shares of gold mining stocks or mutual funds. In doing so, physical receipt of the metal is not necessary, however, the investor can still partake in upward price movement of the underlying metals.

Likewise, gold and other precious metals can also be purchased via Exchange Traded Funds (ETFs), as well as through options and futures. An Exchange Traded Fund will allow a relatively safe way to attain shares in a fund that is based solely on the existing market price of the underlying metals.

Conversely, by going with options and futures investments, investors will take on more risk due to the amount of leverage being used. This form of investment, however, can also allow for more gain than if the physical gold or metals were simply purchased outright.

The Bottom Line

While it is not recommended that investors put all of their wealth into gold and other precious metals, this category should represent at least a small percentage of one’s overall assets. In purchasing metals for investment, it is important to ensure that the metals dealer is reputable and possesses good customer reviews. Once an investor has purchased metals, they will also be enhancing their overall portfolio diversification.