Are you thinking of investing in gold, silver, platinum or palladium? What’s the best way to gain exposure to precious metals?
Thinking of jumping on the precious metals bandwagon? The share of Millionaires interested in investing in precious metals more than doubled in the last two years, from 6 percent at year-end 2010 to 15 percent at the end of 2012, according to the latest research from Spectrem’s Millionaire Corner.
Precious metals are valued in the market place because they are beautiful, useful, rare, portable, virtually indestructible and inherently valuable, according to the Diamond State website. Investors see additional value in precious metals. They help guard against inflation by maintaining their value over time, and enable investors to diversify their portfolios away from stocks, bonds and cash. A well-diversified portfolio is better positioned to weather extreme market events by spreading risk over a number of different financial products.
Not sure of the best way to invest in gold, silver, platinum or palladium? Here’s an overview of the four most common ways to gain exposure to the increasingly popular alternative investments:
1. Physical metal: Bullion – bars of investment grade precious metals – or coins minted by national banks allow investors to take physical delivery of gold, silver, platinum or palladium. Physical ownership of precious metals presents security concerns and the metals do not produce income while they are stored. “But, if you’re concerned about another financial meltdown and want to make an investment in gold, silver or other precious metal that is outside of the financial system, you’ll have to take ownership of the actual physical previous metal you’re investing in,” according to CoinWeek contributor Mark Ferguson.
2. Equities: Investors can obtain exposure to precious metals by purchasing stocks in mining companies. In theory, when the price of a precious metal rises, the stock in the company producing the metal should go up as well, Ferguson said. “However, the management of the mines can often fail, expenses could get out of control, a corporate board could decide to purchase other mines that produce negative returns, government mining laws could change … or similar scenarios could occur that end up losing money.”
3. Futures Contracts: Futures contracts can be a highly speculative, leveraged and volatile investment, according to the website USA Gold. “For someone looking to hedge his or her portfolio against economic and financial risk, this is a poor substitute for owning the metal itself,” said USA Gold contributor Michael Kosares.
4. ETFs: Investors can gain exposure to precious metals through several types of exchange-traded funds or ETFs purchasing physical metal, investing in equities or buying futures contracts.