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Investing in Metals: Strategies Trends, and Market Insights

Jun 30

Investing in precious metals has been a tradition for millennia. While owning physical bars, coins or jewelry used to be the only way to hold such assets, today’s investors have a variety of options. These include precious metals-backed exchange-traded funds (ETFs), 60 or more in Uncirculated closed-end funds, mining company stocks and mutual funds. Investors can choose the investment vehicle that best matches their particular investment thesis, which could include a desire to diversify their portfolio or profit from rising prices. Each option carries unique advantages and risks that should be considered.

Physical precious metals have historically been a store of value and can offer long-term price appreciation based on supply and demand fundamentals. They also can serve as a portfolio hedge against inflation, geopolitical and economic turmoil and stock market volatility. However, investing in physical precious metals requires a high-level of risk tolerance and can have significant storage and insurance costs.

ETFs can be a more convenient and cost-efficient way to gain exposure to precious metals. However, these products are not as liquid as individual stocks and may carry higher capital gains tax rates for U.S. investors because they are viewed as collectibles for tax purposes. Additionally, ETFs can be subject to the same kinds of price fluctuation as other investments and are not an appropriate investment strategy for all investors.

A major benefit of owning physical precious metals is their low correlation to traditional risk assets, including equities. This is because pro-cyclical sources of demand — jewelry and consumer/industrial applications — typically increase during expansions in the economy and counter-cyclical investment demand picks up during economic slowdowns or market pullbacks.

The most common and popular way to invest in precious metals is through physical bullion. Investors can buy physical gold, silver, platinum or palladium bars and coins that they store in a safe or other secure location. While there are benefits to this strategy, it can be expensive and illiquid if you need access to your investment quickly. In addition, investors often pay a premium over the spot price for these products due to manufacturing and distribution markups.

Mining company stocks and funds can be an alternative for investors who prefer to trade on the traditional equities markets. These companies and funds can be a good source of diversification for a portfolio, but they are often subject to the same volatile and speculative market forces as other companies and industries.

The best advice for those who are considering precious metals investing is to understand why they want to add them to their portfolio and then select the investment vehicle that makes the most sense for their particular investment thesis. Investors should avoid high-pressure sales tactics and be wary of unsolicited telephone calls, particularly when they suggest a short time horizon for an investment or promise potentially enormous profits. It is always advisable to speak with a registered financial professional before making any investment decision. This will help ensure that you receive the full benefit of the advice that a reputable advisor can provide.