Pros and Cons of Investing in a Precious Metal Market

Gold and silver are considered valuable since the beginning of time and even today, they have a specific position in an investor’s portfolio. But why are they so volatile? Which precious metal is best for investment? How they work? And how can an investor initiate his precious metal investment. These are certain questions which every investor asks. Some of the most famous types of precious metals used for investment purposes are gold, silver, and platinum. However, you should ask Your Personal Financial Mentor before investing in the precious metal market because he can guide you where to begin and how you can make profitable investments. Investing in a precious metal market has its own benefits and risks. Some of them are discussed below.

If you have a huge portfolio of well diversified investments that includes other asset classes, such as bonds, cash, foreign currency, real estate, foreign and domestic stock then you can also add precious metal in your portfolio. Although it is a volatile investment but its volatility can be controlled with other stable investments in your portfolio. And of course, you would not purchase the precious metal unless you have a significant amount of investments to balance the risk of volatility or else you might wake up one day and half of your life savings are gone. Moreover, you should not invest in a precious metal market unless you have a financial adviser who can guide you on a day to day basis or you have years of experience in the precious metal market.

In times of inflation and political instability, investment in a real precious metal is considered as a safe investment because it has a capacity to maintain its value in a fluctuating market trends. The supply and demand for silver also exert an equal pressure on prices. There is a huge demand for silver in the emerging market economies of the East for medical products, electrical appliances, and other products that require silver inputs. Moreover, you can diversify your portfolio by owning paper silver as well. If you understand the fundamentals of the silver market and can benefit from its undervaluation then you should own as much of it as possible in different forms. This is the reason why it is recommended to hold silver stocks in addition to the physical silver. The price of silver stock is relatively lower than other precious metals, such as Gold and platinum.

Gold, on the other hand, is traded predominantly on the basis of sentiments and its price is least affected by the laws of supply and demand. If an investor feels like selling the stock, its price drops, but if investors feel like purchasing, the gold prices go up again. Like gold and silver, platinum is traded in the precious metal market 24 hours a day, seven days a week. It is a rare metal and this is why the prices of platinum are higher than gold during stable market conditions and political stability. It is considered as an industrial metal because of the heavy reliance of auto industry on platinum as a catalyst. But investors should know that platinum is the most volatile of all precious metals.

With the passage of time, more options have become available to the investors in the precious metal market. They can invest in exchange traded funds (ETFs), mutual funds, derivatives like futures and options, bullions and certifications. These instruments are the convenient means of trading in the precious metal market. Derivatives protect the investors from potential losses and help them earn greater profits. However, these are costly instruments and in many cases, they limit the amount of profit that can be earned by the investors. Moreover, certificates offer the same benefits as offered by physical metal. They also prevent the investors from hassle of storage and transportation and act as insurance in real disasters.

Categories: Precious Metals Market

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  1. Thanks a lot for this useful information!

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September 1, 2013 Pros and Cons of Investing in a Precious Metal Market