Investing in Precious Metal Stocks and Funds – A Complete Guide
Precious metals like gold, silver, platinum, and palladium have long been valued by investors as ways to diversify and hedge their portfolios. Investing in precious metal stocks and funds can provide exposure and upside tied to movements in commodity prices. This complete guide covers everything you need to know about investing in the precious metals market.
Investing in precious metals is worth considering for multiple reasons. As assets with inherent value, they can hold up better than stocks or bonds during periods of economic uncertainty. They also have practical uses as commodities in various industries. With concerns over factors like inflation and global instability, precious metals remain appealing to investors looking to add hard assets to their holdings. Read on to understand why and how to invest in this sector.
What Are Considered the Main Precious Metals for Investors?
The most popular precious metals for investors and funds to gain exposure to are:
- Gold – Seen as an economic safe haven and hedge against currencies and inflation. Gold prices often rise when investors get worried.
- Silver – More affordable than gold but also used heavily in industrial applications, like electronics and solar panels.
- Platinum – Rarer than gold and with demand from auto manufacturers for catalytic converters.
- Palladium – The rarest major precious metal, it too is coveted for industrial uses.
What Are the Primary Ways Investors Get Exposure to Precious Metals?
Investors looking to add precious metals have several options:
- Physical bullion – Buying coins, bars, or rounds directly from dealers and storing or having them stored.
- Mining stocks – Shares of companies that actively mine and produce precious metals.
- ETFs – Exchange-traded funds that hold bullion, futures contracts, or mining shares.
- Mutual funds – Professionally managed funds investing in bullion, mining shares, or derivatives.
- Futures contracts – Agreements to buy or sell a standard quantity at a set price on a future delivery date.
What Factors Impact Precious Metals Prices and Performance?
Some key influences on precious metal prices:
- Economic growth and recessions
- Currency fluctuations
- World events and uncertainty
- Interest rates and inflation expectations
- Industrial and jewelry demand
- Central bank policies
- New mine supply
These factors impact the supply and demand dynamics, affecting the prices and profitability of precious metal companies.
What Are the Pros and Cons of Investing in Precious Metals?
Potential advantages:
- Inflation hedge
- Portfolio diversification
- Hard assets with inherent value
- Limited supply
- Historical outperformance at times
Potential risks or considerations:
- Price volatility
- No dividend payouts
- Storage and insurance costs
- Tax treatment
- Non-productive assets
What Are the Best Precious Metal Mining Stocks?
Some top precious metal mining companies to consider:
- Wheaton Precious Metals (SLW)
- Franco-Nevada (FNV)
- Royal Gold (RGLD)
- Kirkland Lake Gold (KL)
- Pan American Silver (PAAS)
These companies have portfolios of royalty and streaming agreements tied to the production of various precious metals. This gives them upside exposure while reducing operating risks.
Should I Buy Physical Gold and Silver Bullion?
Owning physical precious metals allows you to directly hold rare commodities as opposed to paper derivatives. Bars and coins can provide intrinsic value in a tangible asset. This comes with costs and risks for transportation, storage, and insurance. Overall investment upside depends on price appreciation exceeding these expenses over time.
What Is the Best Way for a Beginner to Invest in Precious Metals?
Good starting points for beginners include:
- Precious metals ETFs for simple exposure
- Shares of streaming/royalty companies
- An allocation in a mutual fund or managed portfolio
- Small holdings of physical coins/bars
Avoid complex futures, options, or mining shares until you better understand price drivers. Seek help from a financial advisor when constructing a tailored precious metal investment plan.
10 Shiny Reasons Why Precious Metals Should Be in Your Portfolio
- Platinum and Palladium Offer Diversity from Gold Stocks
Platinum and palladium provide exposure to industrial metals beyond just gold and silver. This gives your portfolio more diversity across metal stocks.
- Metals Can Hedge Against Risky Market Conditions
Investing in metals can help hedge your investments against inflation or economic downturns. They provide a stabilizing weight in your portfolio.
- Gold and Silver Have Intrinsic Value
Precious metals like gold and silver have inherent value beyond what’s assigned to stocks or currencies, making them appealing for uncertain times.
- There Are Many Ways You Can Invest in Metals
From physical coins and bars to ETFs and mining stocks, there are many avenues to invest in gold, silver or platinum to match your interests.
- Industrial Uses Ensure Ongoing Demand
Usage of platinum and palladium especially in industrial applications helps drive ongoing demand and long-term value.
- Premium Services Offer Investing Guidance
Consider premium investing newsletters or advisors to leverage expertise on the metals markets, stocks, and trends.
- Physical Coins Offer Tangibility
Collecting physical precious metal coins combines investing with holding an intrinsically valuable asset you can see and touch.
- Mining Stocks Leverage Exploration Upsides
Stocks connected to mining/exploration offer higher volatility but also the prospect of share-price upside on major discoveries.
- 2021 Saw Rising Prices Across Metals
Whether gold, silver, platinum or palladium, prices increased across metals in 2021, lifting many related stock prices as well.
- Metals Have Shone for Centuries and Should Keep Gleaming
Gold and silver have maintained inherent value for thousands of years. As safe havens, precious metals ought to withstand the test of time.
There are many good reasons metals can make sense in portfolios today as leading experts concur. With smart planning, they should keep providing portfolio stability and upside exposure moving forward over years ahead. Consider getting your share of precious metals now while prices remain appealing.
Key Takeaways on Precious Metals Investing
Some final points to remember:
- Precious metals offer inflation/crisis hedge and portfolio diversification
- Many ways to invest including mining stocks, ETFs, and physical bullion
- Perform best when confidence in currencies/markets declines
- Volatility and non-yield status still makes them risky assets
- Consider working with a advisor to find your ideal allocation
Hopefully this complete guide gave you a solid background for evaluating whether to invest in precious metals as well as actionable ways to gain smart exposure!
