Over the past few years, the finance industry has become keener on focusing on present-day investment assets, particularly cryptocurrencies. After all, cryptocurrency has always been an appealing asset to investors. Conventional forms of assets lack security, but modern technologies have already solved this problem, which explains the rather abrupt rise in the popularity of crypto.
While it is indeed an excellent investment, precious metals remain one of the most popular investments to date, especially since they’re great as an inflation hedge and offer numerous benefits.
How much will silver be worth if the dollar collapses? What about gold or copper? Is investing in silver and gold objectively better than investing in a more liquid and volatile asset? These are just a few questions one may ask when acquiring precious metal withholdings in their respective portfolios.
If you want to profit from your precious metal investments, you must first know the answers to these questions and develop your own strategy. Unlike assets like stocks, bonds, or mutual funds, precious metals are said to be a bit more complex. Here are some strategies that may help you maximize your gains in your precious metal investments in the following year.
1. Understand the Nature of Different Precious Metals
Predicting price movements is a crucial step when investing in pretty much any asset. Unfortunately, this step may prove to be difficult if you invest in precious metals.
For one, there are different types of precious metals and the price movements for each one are different. For instance, when gold price drops, that doesn’t necessarily mean silver would drop in price as well. Before investing, one must first know the different types of precious metals. Here’s a closer look at your options for precious metal investments:
Gold is the first asset that comes to mind when an investor thinks of precious metals. It has a relatively low risk and most investors prefer buying gold when diversifying their personal portfolios.
Investors also invest in gold in order to minimize their losses in the event where their investments experience a sudden decline in value. This is also known as an investment hedge. But it’s worth noting that gold isn’t necessarily the most expensive, as there are other precious metals with a higher price tag than gold, like rhodium.
Silver is the second most popular investment asset under the precious metals category. Much like gold, investors often buy silver to serve as a hedge in case the dollar declines in value.
What makes silver stand out from the rest of the precious metals assets is its countless practical applications, be it in the health sector or the commercial industry. Moreover, silver is much cheaper than gold, so it has a lower risk factor than the former.
Although not as popular as the previous two, copper is still one of the most frequently-used metals around the world. That’s precisely why its demand and supply are at the higher end of the spectrum. It’s also cheaper than silver, making it a more affordable option for budding investors. Perhaps its mass appeal is held back due to the lack of flashiness that both silver and gold have.
Platinum is yet another precious metal with numerous practical applications, but as you may imagine, it’s not as popular as gold or silver. Due to the pandemic in the past two years, the mining output of platinum has declined which led to a lower supply. As a result, its demand has skyrocketed, making it an appealing option for 2022 and onwards.
Palladium is very much like platinum, only rarer. Hence, it has a higher price than platinum most of the time.
- Other Lesser-Known Metals
Apart from these five precious metals, it’s worth mentioning that there are other lesser-known metals you can invest in. These include iridium, rhodium, lithium, and osmium.
Since different precious metals vary in price movement patterns, it’s important that you invest in an option depending on its current price and demand, as well as the volatility of the market.
2. Keep Tabs On the Production Rate of Precious Metals
Production rate is one of the many factors that move and influence the prices of precious metals. The lower the production rate, the higher the price. Take palladium for example. Due to the decline in production rate as a result of the pandemic, its price has risen considerably over the past few months.
Similarly, if a company establishes a new mine for gold, you can expect gold prices to drop in the subsequent months as the supply would most likely increase.
A good strategy would be to keep tabs on the production rate of precious metals. Doing so will allow you to know whether the metal has a massive supply or not. With this information, you can forecast the performance of the precious metals market and price movements which can go a long way in maximizing your gains if you do invest in precious metals.
3. Stay Up-to-Date With the Demands
As you may already know, the higher the demand for a product, the higher its price would be. Another excellent strategy would be to keep your eyes peeled for any fluctuation in demand.
For instance, for the longest time, silver is often used to manufacture photographic films due to the material’s light-sensitive properties. As other more advanced technologies dominate the industry, the demand for photographic films is slowly declining. The industry is even seeing a lot of silver scraps recently.
As a result, the demand for silver has declined considerably over the past few years. If you don’t want to invest in a precious metal that’s bound to have low demand in the near future and eventually lose a lot of money, a good strategy would be to stay up-to-date with the news.
4. Monitor the Value of the Currency
Precious metals are known to be an excellent inflation hedge. For your reference, an inflation hedge is an investment that aims to protect the investor in an event where the value of a currency drops considerably.
This is mainly because whenever the U.S. dollar drops in value, the price of precious metals like silver and gold increases. For that reason, if you want to make the most out of your precious metal investments, make sure you invest only when the value of your country’s currency is likely to fall.
How Can You Invest in Precious Metals in 2022?
If this was in the early 1990s, the only way to invest in precious metals might have been to buy physical bars of the respective precious metals. However, times have changed, and you now have more options apart from buying gold or silver bars. Here’s a closer look at each of your options:
- Commodity Exchange Traded Funds (ETFs)
The most common method of investing in precious metals is by buying them in the form of commodity exchange-traded funds, also known as ETFs. Still, if you want to use this method, you can only get the three most popular metals, namely gold, silver, and platinum. By investing in an ETF, you’re actually saving money since you don’t need to keep its physical form, so you don’t have to pay for the storage or insurance costs.
- Mutual Funds
Mutual funds are fairly similar to ETFs, but there are differences. For one, unlike ETFs, mutual funds are managed manually, leading to an overall higher expense. Accordingly, many investors believe that ETFs are better, but mutual funds are still a worthwhile method if you want to invest in precious metals in 2022.
Bullions refer to the physical version of the commodity such as coins or bars. Investing in bullion is only advisable for those with a safe place to store them. Otherwise, you may have to spend money on storage or insurance costs.
Certificates are perhaps the closest you can get in owning precious metal bars or bullions. By having a certificate, you have proof of ownership of the asset which you can then claim in a bank or reserve. Take note that you can’t use certificates to buy something from a store like how you use your credit card to make a purchase.
While you’re essentially investing in the same asset, you may have to spend more or less depending on how you purchase the asset. It’s advised that before you decide how you invest in precious metals, you may have to consider several factors such as your budget.
Where Can You Buy Precious Metals?
Much like how there are different ways on how you can buy precious metals, there are also different places that sell these assets. For instance, if you intend to buy the asset in its physical form, you can get them via a reputable dealer or even a local coin shop. In the case of mutual funds or ETFs, you may have to install software on your computer to make a transaction.
As eager as you may be, you must remember that investing in precious metals is in no way an easy task. Not only should you understand the different price movements of each precious metal, but you must also formulate a plan to deal with any sudden fluctuation in the market. Unlike stocks, bonds, and other assets, a lot of factors influence the price of precious metals. With this guide, you should have a general idea of how you should go about it.