Investing in Precious Metals: Physical Metals vs Paper Metal Investments
Investors have more options than ever when it comes to trying to grow their wealth. From cars and real estate to digital pixels and even livestock, anything and everything can be an investment opportunity.
For centuries, gold and silver have been popular investment methods, with many recent opportunities not even involving being in physical possession of the precious metal.
Let’s take a look at the differences between investing in precious metal stocks, precious metal futures, precious metal EFTs and funds and physical precious metals.
Investing in Stocks Related to Precious Metals
Many investors choose to place their money in precious metal companies that are publicly traded on stock exchanges. These include the businesses that prospect for gold and extract it from the ground.
Some of these businesses own the land they mine, while others buy the rights to the land. Either way, they can make or break an investor. The world’s largest gold mining company is Newmont Corporation and pirates in the Western Hemisphere and Africa. Canada’s own Barrick Gold too is quite large and has locations around the world that mine a wide variety of precious metals.
Your ability to profit will depend not only on the success of the businesses’ endeavours, but also on the price of the precious metal they dig for. For example, they could have huge success mining for gold, but if the price of gold temporarily moves down, their stock price may do the same.
Some businesses are referred to as “precious metals streaming” companies, and sign contracts with mining companies to buy bulk gold, silver and other metals at a discounted price. If the price of the precious metal rises afterward, they can profit huge sums, but the opposite is also true.
Investing in Futures
Instead of having physical gold, silver or platinum in your possession, some investors choose to wager on the future price of these metals – without even holding them in their hands.
If the price of the precious metal goes in the direction you think it will, the payoff can be quite lucrative. But the opposite is also true. When margin is called and you take a loss, you will need to pay the difference.
Investing in an Exchange-Traded Fund (ETF)
EFTS are funds that are easy to invest in and quick to get your money out of. Transactions can be conveniently done from the comfort of your home and the funds perform very similarly to those of precious metal prices.
A good example of this is the Canadian Gold Reserve, launched by the Royal Canadian Mint. Your investment is in physical gold, but it’s the Royal Canadian Mint that looks after the storage on your behalf.
Investing in EFTs or mutual funds are easy ways to diversify your investment and reduce your risk.
It sounds great until you realize that you will never actually physically hold your purchase. You need to trust the Government of Canada to protect your investment and pay you when you decide to divest your interest.
And with all services, you will be charged a service fee, which can add up to significant amounts of money, depending on your investment plan.
Investing in Physical Precious Metal Bullion – Bars and Coins
This method certainly has its benefits. You can invest in precious metals in many shapes and sizes from the comfort of your home. You will have peace of mind that your purchase is with you and under your control. Gold and silver products are also easy to buy/sell while keeping your transaction history anonymous.
Investing in bullion also has the numismatic benefit, giving collectability that doubles as a hobby, giving more joy than other non-physical investment options.
Which is the Better Investment?
Many wise investors choose to put their money in physical investments that they can secure and control expenses on your own