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Precious Metals 101: 3 Things to Consider Before Investing

Investing in precious metals such as gold, silver, palladium, or platinum will, almost certainly, provide you with a guaranteed profit in the long run. For the highest return on investment, you should time your purchase correctly. Although, even if you purchase when the prices are high, you should end up with a substantial profit. But, why are precious metals considered as a secure investment in the first place? The main reason is scarcity, which further provides high value since they are used in many industries. Nevertheless, you should always be cautious when it comes to any investment. Here are the essential three things to consider before taking a step into the precious metals business.

gold-217674_640 (1)Which precious metals are the best for investing in?

Gold and silver are traditionally the most popular precious metals. Gold is a synonym for value. It is mostly known as the basis of jewelry and as a form of currency. It is durable, it doesn’t corrode, and it can conduct heat and electricity. Furthermore, it has always been a highly useful diversification tool for portfolios. There are a few factors which influence a high desire to hoard gold – questionable political stability, unstable banking system, inflation, and political (or war) crisis.

Silver could also be considered as a store of value for periods of inflation, the same as gold. However, its usage is much bigger, and it is much cheaper. Many industries require large quantities of this precious metal – electrical appliances, medical products, batteries, etc. Some people consider it to be the best precious metal to own in 2019 because of the significant potential gain! However, keep in mind the word POTENTIAL. Silver price fluctuations are more volatile than gold, and that is its biggest downside.

Platinum and palladium are less popular precious metals. However, they are valuable because of their incredible properties. The highest demand comes from the auto industry, but the jewelry, too. When it comes to platinum, it is used in diesel vehicles as an autocatalyst. However, the auto industry is moving away from diesel, and nowadays, cars which had platinum in their catalytic converters, now have palladium instead. Mostly because of it, palladium price had a gain of almost 30% in a year (April 2017-April 2018). However, keep in mind that both of these precious metals are rare, and produced in only a few countries in the world, which results in volatile price fluctuations.

Allocated VS unallocated precious metals

The difference between allocated and unallocated metals is enormous! First of all, allocated metals provide the highest investor safety. Also, they provide the holder with an ownership title, and they cannot be lent to third parties. On the other hand, it is the complete opposite situation when it comes to unallocated metals. Ownership title is not secured by the holder, which could potentially introduce the counterparty risk. Furthermore, the investors could often become unsecured, in certain situations such as bankruptcy or insolvency. Unallocated metals (gold especially) are a good option only if you want exposure to rising gold prices. Therefore, in most situations, make sure that you invest in precious metals which are fully allocated.

How to protect yourself from counterfeit precious metals?

Gold and silver coins and bars were always good targets for counterfeits. Unfortunately, as technology is rapidly progressing, the counterfeits are improving, too. Platinum products are nowadays counterfeited also with great success. Not only that their number is increased, but the quality and appearance of those bars and coins have improved a lot. Therefore, you have to be highly cautious! Buy only from reputable marketers and dealers, and NEVER buy from unknown sources. Also, for ETFs (exchange-traded funds) and closed-end funds, always check if they are approved by the LBMA (London Bullion Market Association). That way, you’ll be sure that correct delivery rules include all relevant requirements – weight, dimensions, appearance, production of gold and silver bars, etc.

Don’t worry if you see prices of precious metals moving up and down after you invest. Stay calm and look at it as a long-term investment, especially in situations when your other investments or businesses slow down or perform poorly. You’ll be glad to have these precious metal supplies to cover your losses.