Should you invest in gold and other precious metals?
Deciding how and where to invest your money is a personal decision that should be made based on your risk tolerance, time frame, and other factors. There is risk with most investments and investing in gold, silver, and other precious metals is no different. However, when used correctly, these assets can play an important role in a well balanced portfolio. Let’s take a look at some of the pros and cons if investing in gold, silver, and other precious metals.
Should You Invest In Gold And Precious Metals?
One benefit of investing money in precious metals is the relative stability of the investment even during tough economic times. Gold and other precious metals can also be used to store value or as a hedge against inflation. If you are considering such an investment, it is important that you understand the different ways to invest in precious metals. There are five investment categories:
- Tangible bars and coins
- Certificates for bars and coins
- Precious metal mutual funds
- Stocks in mining companies
- Gold and metal futures
- Jewelry
Tips for Investing in Gold, silver, and other precious metals
After better understanding the way gold and precious metals investments work and deciding if the move is right for you, there are some things you need to know. First, if you are looking for diversification and a safe investment, stick with bars or coins. If you are not interested in storing actual pieces, you can also purchase certificates that are representational of precious metal ownership.
Categories of gold and precious metals. Note also there are subcategories of precious metals. Gold bars or bullion are pure (or almost pure) gold. Numismatics refers to minted coins. These coins are typically made to celebrate special events or occasions. It will take some additional research to understand how numismatics pricing is affected by the condition, design, and scarcity of each coin.
Shop around. Finding precious metals for investments requires some comparison shopping. You’ll want to look at dealers online and off. It is wise to check into each dealer’s company to find out how long they have been in business and if the dealer specializes in any specific area of the metals market. Ask dealers who their clients are typically to gauge whether or not it the right investment step for you.
Consider mutual funds, ETFs and individual stocks. If you are looking for more options in the precious metal market, you may want to consider precious metals funds and ETFs. These funds are usually fairly stable and are managed and diversified. Precious metal stocks and mining are not often as stable because of the fact you will by investing in only one company.
Futures – high risk/high reward. For those looking for a higher return potential, there are precious metal futures that may work for your portfolio. Futures refer to a contract to purchase or sell precious metals at a specific price at a particular time – similar to trading stock options. Only choose this option if you are familiar with the market and feel confidence in predicting the increase or decline in the value of metals. Otherwise, this can be a risky investment.
Jewelry. In most cases, jewelry isn’t a good investment since you are usually paying retail prices, which are higher than the melt value of the gold. But in some cases, jewelry can be a good investment, particularly if the jewelry is of historical significance or was made by a famous jeweler. Otherwise, you may be better off selling your gold for its melt value. Here are some gold selling tips to sell your gold jewelry for cash and avoid scams.
To invest or not to invest in gold and other precious metals?
Investing in precious metals and gold is an option to diversification of a portfolio but it may not be the right choice for your investment strategy. Do your research or consult with a professional to determine which option is best for you before you make any investment.
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John says
I do not think that gold is a great inflation hedge. In the last couple of years we have had a deflationary environment, but gold price is up because it is a fear trade. Stocks should outperform gold if you want an inflation hedge.