Precious Metals Investments

In the past, private investors never used to be able to access physical bullion, beyond purchasing coins or jewelry. In contrast, professional investors could buy investment grade bars. London Good Delivery Bars, which are the investment bullion used in professional markets, weigh 400 ounces (troy ounce).

KrugerrandWith the gold price currently trading at 1,645/oz (on the February 13, 2013) the cost of investment grade gold bars are roughly 658,000 USD. Many private investors can not afford such a big investment, so they have to make their investments in precious metals, by buying coins or jewelry.

The purchase of jewelery and coins has various costs related to it. Usually, mark ups for gold coins are five to ten percent of the purchasing price, plus five to ten percent of the selling price, compared to the London Good Delivery Bar spot price.

Thus, for gold coin investors to simply break even on their gold investments, the price of gold has to increase from ten to twenty percent. For silver and gold jewelry, the situation is even more severe, because jewelry normally costs between twenty to 100 percent above the actual London gold spot price.

How to Purchase Silver and Gold

For the doors to the gold markets to be opened for private investors, a range of Exchange Traded Funds (ETFs) were set up. As they have a modest minimum investment requirement, and because they closely track gold prices, they have attracted numerous private investors from across the world.

The problem with ETFs is that they are rarely backed by the physical precious metals. This is the primary reason why investors should expose themselves to precious metals. Generally, ETFs are financial tools that simply “track” gold price movements, and therefore do not possess the same appeal as owning the gold outright. Ultimately, the outright ownership of physical gold is the only thing that offers you protection from inflation, currency and credit risks.

Over recent years, due to the efforts of certain bullion market entrepreneurs, professional bullion markets and allocated investment grade bars are now available to retail investors, under the same conditions that apply to professional traders. Now, investors can enjoy better prices without costly mark ups, and with commissions as small as 0.02% for purchases of as little as one gram of bullion.

Most importantly, the price investors buy metal at is near to, or identical to, the professional bullion market’s spot price. This new market transparency has given private investors the chance to protect their funds, using the same techniques that bigger institutions have used for hundreds of years. These days, private investors can either trade through an online trading platform, or over the telephone, without needing to pay the sizable mark ups usually associated with the ownership of private gold.

SafeUnderstanding Bullion Storage

Another factor to consider is the storage and security of precious metals. Normally, these costs will be added to the price of purchase.

Storing silver and gold in the home, or “in the attic”, brings with it greater risks and insuring this can be rather costly. Another problem with “domestically held” precious metal is that the value of silver and gold goes down whenever it is kept at home, or away from a certified vault.

Generally, when investors buy ETFs (irrespective of whether it has the backing of physical gold), there are management charges linked to the investment of about 0.4% to 0.5% per year.

These days, the best option available is to keep physical bullion in a certified vault, or in a bank. Normally, certified vaults and banks have a large minimum investment requirement, and they charge between 0.5% to 2.5% per year for insurance and storage.

A few dealers of online bullion have streamlined this procedure, by utilizing their wholesale rates with certified vaults and banks. This allows them to offer insurance and storage to customers for as low as 0.12% per year. The bullion is stored either outside or within the banking system, in the primary trading hubs for precious metals across the world. Nowadays, it is possible for investors to purchase bullion easily and safely, with storage and insurance costs included in the competitive prices.

Unallocated or Allocated Bullion

Whenever a private investor is considering a precious metal investment (and needs to get it stored), he or she has to decide whether an Unallocated or Allocated Account is most appropriate. An Allocated Account is where whoever stores your precious metal is doing so as a custodian, with you being the outright owner of the metal. You, as a private investor, hold the ownership rights to the silver or gold, which is usually identifiable.

Unallocated ownership is where the metals are on the bank’s or bullion dealer’s balance sheet, and that other party will “owe” you the value of metals you are holding with them. Here, the investor does not own a particular bar, but just a specified amount of metal.

Where these two types of gold accounts differ the most is in the cost and the counter party risk. Allocated Accounts give private investors protection in the event that the vault, or bullion custodian, goes bankrupt, as the metal is in the name of the investor. Nonetheless, the investor has to pay a premium to get the metal Allocated.

Although it is a rare occurrence, Unallocated Accounts leave the investor exposed to losing their bullion, in the event that the custodian goes bankrupt. Primarily, Unallocated Accounts are appealing due to their low costs of storage and trading, and their efficient infrastructure. Mostly, the reduced costs are what attract institutions and professionals to Unallocated Accounts.

When deciding how to approach bullion market investments, and the protection of assets from confiscation due to inflation, investors have to examine all the available options and choose which is the most appropriate. However, what is undeniable is that the days when private investors used to purchase jewelery and coins, simply for the purpose of making an investment, are a thing of the past. These days, private investors are discovering different and more cost effective ways of tapping into the physical bullion markets.

Silver EagleOther Precious Metal Investments

There are a broad array of alternatives to traditional investment techniques linked to precious metals. These days, the numerous online resources which are accessible to the average person can put real cash in the bank. Simply listing silver coins to be sold online via a third party website, such as ebay (or just using online classified websites), has netted significant profits for people with the good sense to make the coins available at the correct time.

Obviously, just listing silver coins to be sold does not guarantee you will profit. In fact, if you get the timing wrong and you do not do the appropriate research, the coins might even start to decline in value. Comprehending the market value of these metals allows sellers to correctly position themselves to sell their bullion online, in exclusive geographical locations, where there is bigger demand and where the prices will be higher. Understanding all of this is what gives sellers the required edge to make a profit, irrespective of the present economic climate.

Investing in precious metal can be an excellent option for those who are searching for a reliable place to put their cash. Precious metals will not fluctuate in value as frequently, or as significantly, as different types of investments might. Most importantly, when approached with caution (as all investments should be), precious metal can give you a diverse portfolio to secure your financial future.

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