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Breaking into Precious Metals

Man and woman weighting gold.

There is nothing quite as hot as the precious metals market in the turbid climate of today’s economy. Gold, silver and platinum, among others, are still performing extremely well. With the prices of precious metals at hundreds or even thousands of dollars per ounce, breaking into the metals market may seem like a rich man’s game. That is not the case, though; anyone can get into precious metals with the right strategy. There are a few ways to own metals and choosing the right one for you can be difficult.

Entering the Market

The most common way to enter the precious metals market is to buy metal bars or bullion; most buy gold and platinum in their purest form. The value of metals is assessed by weight. You should expect to pay the cost of the metal and an additional premium charge to cover manufacturing costs, plus any insurance you take out on the metals. The bigger the bars you buy, the lower the premium. Make sure you have prepared a safe or other safe way to store your metals. If you don’t want to store your metals at home, you can get a special safety deposit box at the bank.

Physically Own

Another way to physically own your metals is to buy coins or sovereigns that were manufactured in small quantities to commemorate special occasions in history. Coins are collector’s items and can be a great investment depending on the coin’s design and condition. Silver coins are often the most sought after. Coins are not to be used for daily transactions as their value is often much higher than that of the actual metal in the coin. If you are a collector, this is the way to go. As with any collectable, have the item you wish to be appraised by multiple independent sources before you make a purchase.

Other Options

Don’t want to physically own your metals? You have a few options. Gold certificates allow you to purchase a precious metal without actually holding it, and are popular in German and Swiss banks. The certificate states the name of the holder and the quantity of gold held. When you want to exchange your certificates for currency, you can have the bank do so in part or in full. Certificates can be more secure and just as liquid as actual gold in a stable financial environment.

Another option is to buy individual shares of mining companies, or other companies that deal with precious metals. Investing in companies, and not the metal itself, is riskier as this side of the market does not have the stability that the physical market does..

Exchange traded funds are another option for those who wish to break into the metals market. These funds are based on a single security, i.e. the metal you are buying, and their value on is directly proportional to its daily trading rate. The downside? You aren’t directly buying the metal, just trading based on the current going price. While this offers liquidity, it does not offer stability like a physical bar of metal, or even a metals certificate does.

Futures

A more risky way of trading in the precious metals market is dabbling in futures, but this is very risky and only for advanced traders. With this risk, however, comes the potential for far greater return. With futures, you agree to buy the metal at a price you choose at a specified time in the future. You are basically buying the metals for what you think they will be worth in the future. If the price you forecasted is lower than the current market rate, you’ve made an instant profit. If not, you’ve lost the difference.

To profit from the precious metals market, you must choose the style that best suits your needs, keeping your desired liquidity and security mind. Your best bet is always to create a diversified portfolio that balances risk and returns.

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