Six Answers to the Hows of Investing in Precious Metals
In our previous article, we had covered the broad context of why precious metals are esteemed values for investment today. In this article, we are going to unveil the six ways your investment journey in precious metals can begin!
Investing in precious metals can be tricky to the novice. These metals come in various forms and sizes, and present their own unique set of challenges. Before committing to any investment, ample research needs to be made. Let’s begin by weighing the pros and cons of each form.
1. Physical Bullion
Bullions are precious metals taking the form of bars, ingots or specialized coins. They are usually used as a means of trade in a market and derive their value from their mass and purity.
Pros
- Price will most likely increase through the years
- Great hedge against inflation and market crashes as it maintains purchasing power
Cons
- Low liquidity
- Minimal gains in stable markets
- Value is dependant on political climate
- No broker assistance
2. Numismatic Coins
Numismatic coins are any rare or valuable coins with an external value beyond the base value of precious metal. They derive their value from many factors such as their history, uniqueness, markings, extraordinary minting etc, but are generally collected for their value.
Pros
- Recognised legal tender
- Higher liquidity compared to bullion
- More collectible than bullion
Cons
- Value of numismatic coin is based on its collector value and not its precious metal
- Price is not guaranteed over the years
- Poor hedge against inflation and market crashes
3. Futures Markets
Futures Markets are legally binding agreements that permit trade of commodity and futures contracts with the stipulated delivery happening on an agreed date in the future.
Pros
- Higher liquidity compared to bullion
- More collectible than bullion or numismatic coins
- More convenient and user-friendly
Cons
- Price not guaranteed over the years
- Poor hedge against inflation and market crashes
- Reliance on third party futures markets
- High risk
4. Exchange-Traded Funds (ETFs)
ETFs hold assets such as precious metals with arbitrage mechanisms in place to keep trading close to its net value. These funds of investments can be traded on stock exchanges for value.
Pros
- Great exposure to a variety of precious metals
- Low in cost
- Ideal for short-term trading
Cons
- Not great hedges against inflations
- Not ideal for long-term trading due to commission charges
- Can’t make automatic investments or withdrawals.
5. Mining Stocks
Mining stocks are shares in the mining companies that can be purchased by an investor to own claim to a part of a corporation’s assets and earnings. The value of the stock is dependant on the value of the company.
Pros
- High potential for high returns even in price rallies
- High exposure to a given commodity rather than holding a physical metal
- Great leverage
Cons
- Profit is reliant on the company’s success
- No guaranteed returns
6. Asset Tokenization
Asset tokenization is the process of issuing digital tokens as representatives for a real tradable asset in the virtual world. Powered by blockchain technology, ownership of these assets can be fractionalised through the blockchain, presenting a gentler curve for novice investors looking to further their portfolios interest.
Pros
- Lower barriers to entry
- Lower risk compared to stocks
- Low in cost
Cons
- Lack of suitable platforms for precious metals investments
- Precious metals require frequent assessment and valuation which may not be suitable for blockchain
Conclusion?
There is no cookie-cutter approach when it comes to investing in precious metals. It all depends on the goal of the investor and the amount of capital he or she has to invest.
That being said, asset tokenization offers a great entryway for a novice looking to get started. Who knows? Konrad, the new asset valuation, tokenization and trading platform may just be your gateway to asset tokenization.
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