Investing in Precious Metals for Beginners

Precious metals, such as gold, silver, platinum, and palladium, have been coveted for centuries as symbols of wealth and stability. For modern investors, these metals offer a unique avenue to diversify portfolios, hedge against inflation, and preserve value in times of economic uncertainty.

As a beginner, understanding the basics of precious metal investing is crucial. Unlike stocks or bonds, these metals are tangible assets with intrinsic value, unaffected by corporate performance or financial markets. Whether you're interested in purchasing physical metals, such as coins or bars, or exploring investment vehicles like ETFs and mining stocks, there are numerous ways to start building your exposure.

In this guide, you'll learn all about precious metals and how to invest in them.

What Are Precious Metals?

Precious metals are rare metals that traditionally have steady value. Gold and silver are the two best-known precious metals. These metals are useful in manufacturing, tech, and other real-world applications, but they’re also popular investment vehicles for diversifying savings. 

6 Popular Precious Metals to Invest in

If you’re thinking about investing in precious metals, you’ll find that there are several to consider.

• Gold: Gold has probably been the most popular precious metal for interested investors over time. It’s long been heralded as a way to hedge against inflation.
• Silver: Silver is a metal used in many industries, so there’s typically always been some demand for it. However, it’s historically been more volatile than gold and subject to price swings.
• Platinum: Platinum is one of the more expensive precious metals and is used in a variety of applications, most notably in the jewelry industry.
• Palladium: Palladium is especially rare and a less common investment, but some investors include it as a diversification tool.
• Copper: Copper, like silver, is used in numerous industries and has typically been in demand throughout history.
• Rhodium: Rhodium is gradually becoming more popular in various sectors, and smart investors looking to add precious metals to their portfolios are taking notice.

Why Invest in Precious Metals?

Deciding what asset classes to add to your portfolio? Here are some attributes of investing in precious metals.

• They aren’t correlated with other assets: Their performance is typically less connected to that of other asset classes, so they can add some balance to an otherwise diverse portfolio.
• Their price tends to stay steady over time: Because there’s a limited supply of certain precious metals available to investors, their value tends to stay steady over time.
• They generally hedge against inflation: Inflation makes the purchasing power of the dollar go down. Because precious metals are less correlated to the dollar, they are an organic store of value that generally helps hedge against inflation.
• They can be a tangible asset: If you want to store some of your assets at home — not at the bank and not through the stock market — physical precious metals let you do that.

Precious metals have generated sold returns throughout history. But remember, those returns aren’t guaranteed. Before you invest, make sure you understand what impacts the price of different metals and whether or not investing in precious metals is the right decision for you.

Understanding the Precious Metals Market

The precious metals market can be volatile at times. But if you take the time to do your research, stay apprised, and work with a trusted advisor, you can better understand what factors affect the market and whether or not a particular precious metal might be a good choice for your savings.

Value of the Dollar

Global markets measure gold, silver, and platinum in U.S. dollars. As a result, precious metals (and these three in particular) tend to have an inverse relationship to the strength of the U.S. dollar.

With a pattern like this, you can see why precious metals have been such a great hedge against inflation, though we can’t guarantee precious metals will always perform steadily during times of inflation. It isn’t the only market factor to consider.

Central Bank Policies

Central banks have immense financial power, as they set a country’s monetary policy. These policies, in turn, can influence prices. For instance, when the Federal Reserve increased its balance sheet, precious metal prices tended to respond well.

Supply and Demand

When more people or businesses want to purchase a specific metal, its price goes up. For example, if you’re already investing in precious metals, you know that rhodium (a metal used to make catalytic converters) has risen in value as demand for it has increased.

Geopolitical Tensions

When people are faced with uncertainty, they start to worry about their finances. Many of those investors have turned to precious metals whenever economic uncertainty arises. As more investors tap into precious metals, the price has tended to respond well.

Ways to Invest in Precious Metals

There are multiple ways to invest in precious metals. Here are three factors to consider.

Physical Metal

Holding a precious metal in your hands is an experience. Some investors prefer the security of holding actual metal, so they purchase gold or silver coins or bars. If you go this route, you’ll need to visit a bullion dealer. Once you have the metal, you must store it securely (usually in a safe deposit box). Most investors also insure the metal in case something happens to it.

Having actual metal may give you some peace of mind because it’s always at your fingertips, but it does have some downsides. Bullion dealers sometimes charge high fees, and if you want to liquidate your assets, you’ll find it’s harder to sell physical gold than it is to sell stocks.

Exchange-traded Funds (ETFs)

Shares of precious metals ETFs are a lot easier to buy than bullion. Some of these funds are backed by physical metal, so investing is like keeping the metal yourself only easier.

Other ETFs are backed by futures contracts, which means that they’re backed by the promise of precious metals rather than by the metals themselves. ETFs have fairly low fees and are straightforward to invest in, so they can be a good choice for investors looking to get started in diversifying their accounts with precious metals.

Mining Stocks

One other option is to invest in the stocks of the companies that mine precious metals. However, these stocks are still heavily influenced by the prices of the precious metals the parent companies extract. They can also be more volatile than broader market indices.

How to Invest in Precious Metals

Now you know a few ways of investing in precious metals. But how do you actually do it?

If You’re Buying Physical Metal

To purchase actual metal, you first need to find a reputable bullion dealer. Make sure you do your research — dealers sell precious metals at a markup, and some charge more than others.

Once you buy the metal, you need a safe space to store it. Some experts recommend storing large amounts in safe deposit boxes but still keeping a small amount at home.

If You’re Investing in ETFs or Stocks

Online trading has made it much easier for everyday people to start investing. But before you select an individual stock or ETF to invest in, you need to make a brokerage account. Below, Benzinga has selected some of the most reliable ones.

Regardless of the way you’re investing, there’s a good rule of thumb to keep in mind. Some experts recommend putting 5% to 8% of your investment capital into precious metals. However, expert opinions differ, and that recommendation isn’t an absolute rule. Always speak with a trusted financial advisor about your own personal investment goals before making any decisions. Putting 5% to 8% of your capital into precious metals may be the prevailing recommendation, but depending on your individual circumstances and needs, precious metals may not be the right move at all.

Where to Invest in Precious Metals

Investing in precious metals for beginners starts with finding the right broker. If you’re ready to get started on your investment adventure, check out these Benzinga-approved brokers.

Let Precious Metals Transform Your Portfolio

Wise investors have traditionally looked toward precious metals to incorporate a stable asset during uncertain times. However, investors need a solid investment strategy and the right educational resources before getting started.

Investing in precious metals for the first time often comes with a steep learning curve. Combined with working alongside a trusted financial advisor, Benzinga’s educational and transparent information resources for investors can help.

Frequently Asked Questions