Gold and silver have always been recognized for their attributes. Today, those two metals are still an important part of any prudent investor’s portfolio. Economists at Investopedia have proposed to give a helping hand to those in the first steps of investing in precious metals by presenting their advantages and ways of trading.
The most traded precious metal is gold. Its value is determined by the major trading markets, open 24 hours of 24 and nearly seven days a week. The price is influenced mainly by the general feeling and in a lesser measure, of demand and supply. The amount of gold extracted is again much smaller than the amount already existing, so new entrants in the market have a significant influence. However, if holders decide for one reason or another, to sell, the price will drop. When they decide to buy gold, new market entries will be quickly absorbed, and the price will explode.
Among the most important factors leading to increased demand for gold are: concerns about the financial sector, inflation, wars and political crises. So, the feeling of escaping to cause instability in a value considered safe.
The second precious metal traded in large quantities is silver. Unlike gold, silver price is more volatile because of its wide use in various industrial sectors. Large consumers of silver are manufacturers of electronics, batteries, medical devices, conductors, etc. Therefore, its price is connected to the industry in a much more direct way than gold.
The third metal traded extensively is platinum. When the economic situation is normal its price tends to be higher than gold because of its rarity. Like silver, its value is directly related to industrial demand, the main consumers being auto manufacturers (catalyst used in cars), oil refineries and computer makers.
Platinum mines are concentrated in two countries – South Africa and Russia – which increases the risk of collusive actions translated into inflated price, which, along with the other vectors make platinum the most volatile precious metal.
Those interested in building a portfolio based on one or more of the metals have mentioned a few possibilities. Firstly, closed-end investment funds (Exchange Traded Funds – ETFs).
A second way is represented by common stock investments directly or through mutual funds. Shares of precious metals’ mines are closely related to their price. If the price of a gram of precious metal goes up, corporate actions will most likely become more valuable, too.
A third way, futures and options market is only recommended to investors who want to make big gambles on one of the metals. There is a great potential for gain or loss.
Ingots, coins or jewelry can be an investment option only for those who have a spot to store them. Certainly, those who expect the worst in the economy make a good choice by buying metal. But bear in mind that the bars are not very liquid, so you should also consider the time horizon of investment.
Source by Tevin A Jones
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