Myths And Facts about Precious Metals

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Precious metals have always been in demand. Should we consider them as a means of capital preservation and increase? In this article, we are breaking down the TOP 5 popular myths about precious metals.

Myth #1 – Investments in Precious Metals Are The Most Reliable

Yes and no. Precious metals were in demand even during global economic crises. But if we are talking about short-term investments (less than a year), then they may not bring income or even lead to financial loss.

Unlike equities or cash, precious metals always have an independent value. It means your investments are protected: Even during economic turmoil, the price for precious metals cannot be zero.

Conclusion: Investing in precious metals will help you keep savings, but only if it is a long-term investment, at least 10-15 years. In a shorter period, you may even lose part of your savings.

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Myth #2 -When Precious Metals Are Cheap, I Should Buy Them with All My Money

No. First, you should not invest more than 10% of your investment portfolio in precious metals. Don’t put all your eggs in one basket, even if these are golden or silver eggs. Secondly, you need to decide on the goal: Do you want to make quick money or save it? Your investment strategy depends on it.

If your goal is to make quick money, buy assets when prices are just starting to rise after a decline and sell as soon as prices begin to decline. But to make money in this way, you need to carefully monitor the market.

At the same time, you should not buy and sell too often: Every time you pay a commission to the company through which you make transactions. It could take all the profits.

Myth #3 – It Is Better to Buy The Most Expensive Metal

Not always. It depends on your financial goals, economic situation, and price dynamics for a particular metal.

The most popular is gold. It is stored in the reserves of central banks of all countries. Historically, this has been the most common form of accumulation of wealth.

Silver is in second place. It is very affordable. Banks offer it in both bullion and coins. Like gold, silver rises in price during an economic downturn and crisis. From this point of view, gold and silver can be seen as a form of savings insurance in volatile times.

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Myth #4 – Only Rich People Can Invest in Precious Metals

No, you don’t have to be rich. You can invest in precious metals any amount, just choose the suitable option:

Myth #5 – Buying Jewelry Is Also an Investment in Precious Metals

No, buying earrings and rings will never make you money. Their price is 2-3 times higher than the cost of pure metal. And in a pawnshop, only the price for the metal will matter. So in the best case, you can return half or a third of your costs, unless this is the jewelry of the royal family, which is hunted by connoisseurs of antiques.

I Want to Invest in Precious Metals. What Should I Pay Attention to?

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Price

If you are willing to invest a little, cheaper metal such as silver will suit you.

Fluctuation

For short-term investments, a more volatile metal may be suitable. The price for silver, for example, changes more frequently and with greater amplitude than gold. This means that you can quickly earn more on it.

Liquidity

Learn how quickly and with what losses you can sell the metal. Banks set a commission for the purchase of the precious metals, up to 30%. If you are not investing for several decades, it is better to invest in gold or silver. They are more liquid than platinum and palladium and it is easier to buy and sell them at the best price.

In addition, attention should be paid to:

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  • Metals storage outside the banking system

The most important way to minimize risks is, perhaps, the storage of precious metals outside the banking system. As practice shows, the storage of precious metals in banks, in special bank cells, doesn’t guarantee security.

For example, in the United States, there are cases when client consultants in banks had to open safes together with their clients in order to confiscate precious metals in favor of the state. During the crisis in Greece, bank customers were also denied access to safe deposit boxes.

  • Historical experience of gold confiscation

Another important piece of advice is to avoid purchses of metals in countries that have already experienced property confiscations. These countries include, for example: USA, Germany, Russia, Italy.

  • Current legislature

An important factor to pay attention to is the jurisdiction under which the company operates through which you invest in physical gold or silver. If this company is subject to the laws of one of the countries listed in the previous paragraph, this also entails great risks.

For example, if the government of any of these jurisdictions decides to freeze all the assets of its citizens on a global scale. In this case, this decision will apply to all companies operating under the laws of this jurisdiction.

In A Nutshell

To invest or not to invest in precious metals — that is the question, the answer to which depends on you. But whatever you choose just remember: first of all, they are defensive assets. Empirical experience shows that medium-term investments (up to 1-2 years) in any precious metals can lead to a decrease in the capital value. At the same time, it is obvious that gold over a long period (3-10 years) always rises in price.

For other precious metals — silver, platinum, and palladium, — this rule also applies, but the period may be longer, so you need to be careful with them.

And always educate yourself about investments! Of course, it is impossible to know in advance exactly what challenges and dangers await in the future. However, following the basic rules of caution can help you avoid big losses and disappointments.

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