According to one recent report, up to 25 million Americans own some amount of gold as an investment. Are you thinking about joining those ranks?
Whether you’ve pursued other types of investments before or this is your first foray into the niche, there are plenty of tips to know and pointers to learn. If you’re interested in investing in precious metals, this guide is for you.
Today, we’re sharing an in-depth guide that walks you through this process, including insider advice on the feasibility of growing your income this way.
Understanding the Precious Metals Market
Before we dive into whether or not precious metals offer a valuable investment opportunity, let’s first discuss what this sphere entails. When we talk about precious metals, we primarily mean gold, silver, and platinum, which have long been recognized as holding intrinsic value.
If you’re an experienced investor with a varied portfolio, then it’s likely that you’ve already put some of your money into this sector. Let’s start by taking a look at the most common types of precious metals.
If you’re eyeing gold as an investment, then you’re on the right track. This metal offers a range of unique benefits that make it both attractive and profitable. A few of the reasons to invest in gold include:
- It is ultra-durable
- It avoids rusting and corrosion
- It can conduct heat and electricity
- It’s shapeable and malleable
In addition, it’s also versatile. While we primarily think of gold as a mainstay in the jewelry realm, it’s also a form of currency in some parts of the world. In addition, it can also be used in other industry applications, including dentistry.
What does this mean for investors? The value and need for gold will remain constant, even if other investments become more volatile.
Today, you can even work with gold IRA companies to purchase gold coins or bullion to secure your investment. You can get more info here to learn more about how the process works.
Determining the Price and Value of Gold
Wondering how it obtains and holds its value? There’s an ongoing, 24/7 gold market that operates around the clock. While some investments are driven largely by supply and demand, this isn’t one of them.
Rather, gold’s value lies in a few different factors. These include:
- The global demand for gold
- The amount of gold currently held in the central bank reserves
- The value of the U.S. dollar
Over time, there is also a varying need to hoard gold. Those who own this precious metal will often keep it close to protect themselves against inflation, as well as changes in the value of general currency. Other reasons for hoarding include:
- Shaky political stability
- Shaky financial stability (banks and currency)
- Rising inflation rates that negatively affect other investment markets (equity, real estate, bond)
- Political unrest or wars
If there’s any type of imbalance in the financial, political, or investment realm, then savvy investors flock to gold, and the market reflects that trend. Not only does it deliver a reliable store of value, but it can maintain that value even as other rates of return shift downward.
More practically-speaking, hoarders also keep gold close by during wartime eras. This is mostly due to the fact that it’s a portable form of currency that they can readily trade for survival mechanisms, from food to shelter.
When demand is up and they’re inclined to buy, then they’ll absorb any new supplies relatively quickly. In turn, this drives up the price of gold beyond its current state. Yet, when other sectors are stable and these hoarders believe it’s time to sell their collections, then the price of gold inevitably drops.
Are you more interested in the timeless appeal of silver? While it’s also categorized as a precious metal, the value of silver hinges on two factors:
- The stored value that investors believe it holds
- Its use as a rugged industrial metal
These two elements can create much volatility within the silver market. While investors are just as eager to hoard it when they perceive an increase in its value, there exists a continual supply/demand pendulum that also has an effect on its selling price.
Determining the Price and Value of Silver
Like gold, silver is used in fashion and jewelry markets. Yet, it also has other important applications to note. Sometimes, those applications make it more valuable, and other times they take away from its value.
For instance, silver was once a powerful part of the film and photography industry. Before the era of the digital camera, it was a main component of photographic film. Now that we’re taking pictures with our smartphones, we have even less of a need for physical film, which has dropped its value somewhat.
Yet, that decline in the West is offset by silver’s rising role in the East. Here, the middle class is progressively rising, along with robust market economies. Now more than ever, there’s a growing demand for appliances that include silver, such as:
- Medical items
- Industrial components
While these realms are rising in the East, silver will always have a place in the global electronics market. From batteries to microcircuits, its store of value is determined at least partially by its many uses and applications.
As one of the rarest precious metals, platinum tends to demand a higher price than even gold when the financial and political markets are stable. This is because while gold mining is a massive industry, significantly less platinum is derived from the ground on an annual basis.
Determining the Price and Value of Platinum
Though it does have aesthetic uses, platinum is also considered an industrial metal (like silver). A few of its most prominent applications include:
- Automotive components
- Computer components
- Petroleum and chemical refining
Interestingly, it’s the automotive industry that primarily drives the price and value of platinum. When auto sales are up and production numbers are healthy, then prices are likewise high. Moving forward, if the market for low-emission vehicles continues to rise, then automakers could be required to install a greater number of catalytic converters.
This move would raise the demand for platinum even higher, spiking prices. Other occurrences that could increase its price include political unrest or cartel activity occurring in regions where platinum mining frequently occurs, including areas around South Africa.
Four Reasons Why Investing in Precious Metals Is Smart
Now that we’ve covered how the precious metal market works and the different factors that influence pricing, let’s take a look at four key reasons why this is a smart market to pursue.
1. Easy to Find and Purchase
It can be simple and straightforward to buy precious metals, as long as you know where to look. Today, there are a few different resources that make the process as seamless as possible. These include:
- Specialized market dealers
- Banks and other financial institutions
- Bullion traders
As long as you have a solid understanding of how the metals work and what drives their value, then you can get started easily. Plus, you can vary your investment according to your means. If you can’t afford a full ounce of gold, then you can opt for a less expensive metal, such as silver.
2. Required for Critical Applications
As mentioned, gold, silver, and platinum all have critical uses in everyday markets. From jewelry to electronics, these metals form the foundation for many products that people all around the world need and use on a regular basis.
This means that they won’t lose their value any time soon. They are indispensable and will always be in high demand. Even if their selling price fluctuates due to outside conditions, you can rest assured that your investment is a solid one.
3. Rising Global Demand
Need another reason to purchase precious metals? Their demand is currently surging around the world. In general, the global market has remained relatively steady, and continues to offer incredible opportunities for savvy investors.
Compared to other metals, gold and silver have performed especially well. Jewelry manufacturers in other countries continue to require such metals to produce their wares. Plus, even small jewelry businesses are reaching massive buyer audiences thanks to resources such as social media and e-commerce selling.
Bullions are physical forms of gold or silver, usually found in the form of bars or coins. As long as you have a secure place in your house to store them, this can be an ideal way to maintain your investment.
With the right safety deposit box or high-security vault, you can keep tangible gold or silver on your premises. While this is an attractive premise, keep in mind that such investments are also illiquid. If you’re in a time crunch investment-wise, then it’s smart to invest elsewhere.
Optimize and Grow Your Investments
Any time you decide to invest your time, energy, and money into something, you want to make sure that you’ll receive a return that’s equally rewarding. This is the case for anyone interested in investing in precious metals.
While these resources might vary in terms of price and demand, their overall growth continues to trend upward. Metals like gold, silver, and platinum are necessary in various industrial, commercial, and retail markets, and smart investors are cashing in on that need.
Are you looking for business and tech advice you can trust? Check back often for more informative guides!
Wayne Probert is a senior reporter at Zobuz, covering state and national politics, and he is a grantee with the Pulitzer Center on Crisis Reporting. Before joining Zobuz, he worked as a freelance journalist in Kentucky, having been published by dozens of outlets including NPR, the Center for Media.