How does your investment portfolio look? Well, you can be strong and say it looks really good when you know some part of it is actually devoted towards some precious metals. Don’t you think so? Even without knowing it, as Indians, we tend to lean towards investing in precious metals of various kinds. Honestly, we do not hold the upper hand when it comes to buying gems and stones, but as for precious metals, we always stand on top of that pyramid. Moreover, India is still the biggest consumer of yellow metal – gold. Gold and silver are on top of the list for investments in precious metals – you would want to know a few things before you can actually start investing in them.
Things You Need to Know Before you Can Start Investing in Silver or Gold
a) Is It Digital, Paper, or Physical?
One good reason to start to invest in precious metals is the ownership of an asset that is not liable to anybody else. This goal is frequently realized via investing in precious physical metals (coins and bars), digital gold, and physically-backed exchange-traded funds.
Paper gold – on the other hand, such as gold certificates and futures contracts, is often unbacked by physical metal, does not grant ownership rights, and cannot be exchanged for physical metal. Paper gold investors will almost certainly become unsecured creditors in the event of issuer default.
Consider investing only in precious physical metals, which provide direct ownership title, or in fully-backed physical exchange-traded offerings, which provide beneficial ownership of the underlying metal and (ideally) the option to redeem shares for physical metal.
Also, another thing you need to keep in mind is – when it is a gold bond, the price of the gold bond or ETF remains the same throughout all of the states of the country. It isn’t the same case for physical ones. In the case of Physical gold, the prices change from state to state or even city to city. For instance, the Bangalore gold price and the gold rate today in Punewould vary.
b) Where are These metal Stores?
Since one of the basic reasons for owning precious metals is to hedge against risk, storing gold with a dangerous counterparty should be avoided. Many respectable storage companies provide insured storage. The majority of precious metals ETFs keep the underlying metal at bullion banks like HSBC or JP Morgan. Even the largest financial organizations are vulnerable in a market crisis, as proved in 2008. In some cases, bullion banks are also permitted to hire sub-custodians for storage, adding another layer of unquantifiable risk.
Reduce counterparty risk by using reputable and trustworthy storage facilities. Make sure you avoid storage custodians that are subsidiaries of leveraged financial institutions for ETFs and closed-end products.
c) Will They Be Delivered?
Direct investment in the coins and the bars are the easiest options to get physical delivery – but there are setbacks, such as markups and the time-consuming nature of visiting a dealer and then selecting a safe deposit box for the metal.
The majority of significant bullion ETFs do not allow the common investor to take physical delivery of the underlying metal; instead, this flexibility is reserved for a small number of Authorized Participants (mainly bullion banks) chosen by the ETF to facilitate the issuance of new units. Investors in some closed-end funds can take physical delivery of the underlying metal.
Any bullion investment instrument must provide investors with the option and capacity to take physical delivery of the underlying precious metal. Make an informed decision.
d) Are They Allocated or Unallocated?
The difference in allocated and unallocated precious metals has numerous critical ramifications. Allocated precious metals offer the highest level of investment protection. They are separate, unencumbered, and grant ownership title to the holder.
Unallocated precious metals – on the other hand, begin to entail counterparty risk because the holder’s ownership title is not secured. In rare circumstances, gold investment vehicles may grant investor claims in excess of the total amount of underlying metal if the such metal is unallocated. Investors will become unsecured creditors when the issuer is insolvent or bankrupt.
Consider investing only in completely allocated precious metals, which ensure that the metals are not compiled in any form and that ownership claims will not be more than the underlying metal’s value.
Silver or Gold? What to Choose?
Well, if you are making a choice between silver or gold, here is what you have to know before getting started:
1) If You Fear Economic Movements – Silver is Not the Choice
Half of all silver is utilized in the heavy industry and high technology, which is inclusive of smartphones, automotive electrical systems, tablets, solar-panel cells, and a wide range of other products and applications. As a result – silver is more susceptible to economic fluctuations than gold, which has limited applications outside jewelry and investment. When economies rise – so will the demand for silver.
2) Gold Always Holds the Upper Hand
Silver could be known as a good portfolio diversifier with a somewhat weak positive connection to equities, bonds, and commodities. Gold – on the other hand, is seen as a more strong diversifier. It has consistently been uncorrelated with stocks and has very low correlations with other main asset classes, and for a good reason: Gold, unlike silver and industrial base metals, is less affected by economic downturns since its industrial applications are relatively limited.
3) If You Want to Start Off Small – Silver It Is
Silver is far less expensive than gold; this makes it more accessible to modest retail investors. Silver would be a better investment option for those who are just starting to construct their portfolios due to its lower cost.
Well, we know investments in precious metals are always a good choice – since they don’t actually carry as many risks as any stocks. But, though they don’t carry a heavy risk factor, it is essential that you know everything about them before you start investing. This can save you even the smallest of risks that you would be facing in the near or far future.