Precious Metals Investing: A Beginner’s Guide

Profitable Tips for Precious Metals Investors

People who consider themselves savvy investors most of the time have minimal experience with alternative investments, especially precious metals like gold, silver, platinum, and palladium. The reasons for this are diverse and plentiful, but some of the more common are: general risk aversion, price fluctuation of precious metals, limited knowledge of the asset class, and a lack of understanding just how precious metals may impact a balanced portfolio.

Generally, precious metals make up one component of a larger investment portfolio. Investors use precious metals to offset risk and serve as a hedge, or insurance, against inflation. This is because the price of both primary precious metals — gold and silver — usually moves inversely to the economy. If the stock market is up, gold and silver are usually down and vice versa. When the stock market is in serious crisis, however, precious metals can take on a whole new luster, as seen during the Great Recession. Not surprisingly, over the past five years, most precious metals have seen gains. 

Key Considerations for Successful Precious Metals Investing

Educate Yourself

Understand the difference between bullion and numismatic products. Read up if you want to own a physical amount of precious metals (tangible assets). On the other hand, you can own a precious metals exchange-traded fund (ETF), which is considered ‘gold on paper’ (intangible asset). Physical metals are allocated in your name, whereas a product like an ETF is allocated to a bank-run fund. With the technology available today, it’s possible to do a minimum amount of research in order to understand the options available, their pros and cons, and how prices have behaved relative to common economic factors over time.

Keep Your Investments Scalable

Most financial advisors recommend an allocation amount of between 5% to 10% of your total investable assets. Again, this is why precious metals are seen as a hedge against other investments in your portfolio. Precious metals can also easily be added to existing IRA accounts.

Monitor Spot Prices

Spot prices are the exact amount that a precious metal is trading per ounce and can be viewed in real-time. One of the best resources for checking spot prices is Kitco News.

Be Mindful of the Dollar Cost Average

Dollar cost averaging is a tactic for minimizing asset risk by calculation over regular intervals and is one reason why it is recommended that investors buy precious metals periodically.

Plan for Storage

Bank safety deposit boxes do not ensure precious metals like FDIC-approved deposits. If your investment is substantial, look into storing your precious metals at a secure depository. If you’re storing physical assets at your home, be discrete. All it takes are a few bad intentions and a poor hiding place to invite theft.

Pitfalls in Precious Metals Investing

Over-investing

They don’t call it ‘gold fever’ for nothing. A good financial advisor can guide you toward an appropriate investment level of precious metals. Keep in mind that your goal is to have a balanced portfolio, with precious metals acting as an internal insurance policy.

Know Your Source

Look for dealers with a solid history of doing business in the industry. The good guys should be easier to spot than the bad guys. A good place to start is checking with the Industry Council for Tangible Assets (ICTA) and the Professional Numismatists Guild (PNG).

Price Shopping

Put considerable effort into finding the best price per ounce for your precious metals investment. ‘Buy low, sell high’ applies to precious metals, just like any other investment asset.

The world of precious metals investing is complex but very rewarding for savvy investors. Like anything in the world of alternative investments, do your due diligence and apply common sense. You’ll be on your way to a truly balanced portfolio in no time.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

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This is an updated version of an article originally published March 18, 2019 and updated on July 6, 2021. This article was most recently updated by the Financial Poise Editors.]

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