Precious metals have generated intrigue for millennia. The ancient Egyptians first smelted gold to make jewelry, and other cultures throughout history have used gold and other precious metals, such as silver, as a rate of exchange. These glittery valuables still command attention. But if your interest is piqued beyond their aesthetic value to consider their potential investment value, you may be able to mine some benefits of investing in precious metals.
Two Types of Metals Investments
If you want to invest in precious metals, you can physically own the metals, or you can invest in a precious metals financial product such as an exchange-traded fund or even a precious metals individual retirement account. A drawback of investing in a precious metals financial product is that you will not actually own the metals. So, if the tangible benefit of being able to hold the actual product in your hand is what you want, you can always purchase precious metals now and save investing in a precious metals financial product for another day.
Advantages of Owning Precious Metals
When weighing precious metals pros and cons as an investment, consider that physical metals are:
- Tangible. Unlike commodities such as agricultural products, which need maintaining, physical metals are mostly care-free. And even though they’re tangible, metals are indestructible by fire and water, and they don’t deteriorate over time.
- Technology-Free. Precious metals aren’t dependent on utilities, and they’re not reliant on digital technology.
- Space Efficient. You won’t need a warehouse or even a storage building to hold precious metals. The compact size of a home safe can hold your investments, but be sure that your home insurance policy covers the theft of physical metals.
- Free of Counterparty Risk. You won’t need contracts, go-betweens or shared liability to hold precious metals.
Examples of Precious Metals Investments
Generally, bullion coins and bullion bars are the two most common forms of precious metals that investors choose. Coins are better suited to most investors, and bullion bars are better suited to large investors and institutional buyers. An exception to large bullion bars for the smaller investor is a 1 ounce bullion bar.
Forbes notes that Gold American Eagle bullion coins and South African Kruggerands are good choices for precious metals investors. These are examples of sovereign coins, which have the benefits of recognition and easy trading.
Gold Vs. Silver Investments
When you weigh the pros and cons of investing in silver as opposed to investing in gold, Forbes gives the nod to gold. Silver has desirable attributes, including the attraction it holds for smaller investors because its price is less than gold. But the price of gold is less volatile than the price of silver, and it’s more liquid.
Typical Return of Precious Metals
With gold as king among precious metals, its historical rates of return have given stocks and bonds some stiff competition. For the past 15 years, with an average return of 315 percent, gold easily surpasses the Dow Jones Industrial Average's return of 58 percent over the same time period. When compared to the Fidelity Investment Grade Bond Fund (FBNDX), gold’s return of 315 percent still more than doubles the FBNDX’s return of 127 percent.
Where to Buy Precious Metals
Online dealers are the way to go when purchasing physical metals, according to Forbes. And if you’re buying bullion, look for an online dealer with a buy-and-store option that offers approved storage vaults through the nonbank London Bullion Market Association.
- gold coin image by Greg Pickens from Fotolia.com