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3 Questions to Ask Yourself Before Investing in Precious Metals

Posted by on November 13, 2019 in Investing with 0 Comments

Few things in life can match the wrenching feeling of seeing your retirement holdings drop by up to 80% during a stock market crash. All those years of hard work building up your retirement savings are suddenly put in jeopardy and you feel powerless and frustrated, to say the least.

This is why many investment advisors are recommending allocating a portion of your funds to precious metals. Precious metals have a negative correlation to the stock market and can act as an incredibly effective hedge against inflation or market uncertainty.

Before you throw your hat in the ring, however, you should have an understanding of what investing in precious metals entails and you should always check out customer reviews like https://www.trustpilot.com/review/learcapital.com. There are also three basic questions you should ask yourself before investing in precious metals.

What Is the Best Way to Invest in Precious Metals?

There are 3 main ways to invest in precious metals: buying bullion coins, bullion bars, or through Exchange Traded Funds (ETFs). Buying bullion coins or metal bars offer investors the chance to own the physical metal.

By owning precious metals, you have an asset that is stored outside of the financial system which can help mitigate the effects of inflation or economic downturns.

However, investing in an Gold-based ETFs means that you are investing in funds that trade like stocks. Although they reflect the price movement of gold, these funds only hold derivative contracts that are backed by gold.

Although they can act like the hedge most people use them for, investing in Gold-backed ETFs does not give you the right ownership of the actual metal. Thus, this removes one of the main rationales for investing in precious metals: owning a precious metal that lies outside the financial system

Should I Buy Gold Bullion or Silver Bullion?

Gold has a significantly higher demand worldwide than silver and therefore has a much more liquid market than silver. This is, of course, due to high demand for gold in jewelry and for investment purposes.

However, silver is cheaper to buy and has a tighter correlation to economic activity than gold does. This makes silver a more attractive investment during bear markets as you can buy silver at a big discount.

So while gold is a better investment for the long-term, silver tends to offer more attractive investment opportunities.

Bars VS Coins

Precious metals can be bought either in bullion coins or bars. Due to their smaller size, bullion coins are easier to trade and you can sell them with higher premiums than you would a bullion bar. Therefore, the average investor would have a much easier time selling coins than bars and the higher premiums lead to potentially larger returns.
The larger bullion bars, however, tend to be more difficult to sell and can lead to higher transactions costs. However, if you are an institutional investor looking to buy large amounts of precious metals, bullion bars may be the better deal as they usually sell at a discount.

If you’re looking for a short-term trade, investing in precious metals many complications that may not be suitable for the average investor. If you’re looking for a way to protect your retirement savings over the long-term, then investing in precious metals can be an effective strategy.

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