Precious Metals Investment Options
June 27, 2012 4:28 pm
Due to the current economic uncertainty surrounding Europe, Slowing growth in China, and the stellar performance Gold and Silver have achieved over the last decade, many financial experts have recommended that 5 -20% of an individual’s assets should be allocated to Precious Metals. There are many paths to choose as investors are continuously bombarded with advertisements, so it can be quite a tricky process deciding the “best” way of investing in precious metals. The following information summarizes these different options to help you make the right decision FOR YOU. There is no right or wrong way to invest in precious metals, there are only preferences.
- Exchange-Traded Funds (ETFs): Precious Metals ETFs are designed to move in sync with the price of gold. They are traded on the major stock exchanges, including London, Paris, and New York. Many investors choose this option because they feel that they have the advantage of investing in precious metals, without having to worry about the burden of storing it. However, many experts are skeptical of the amount of gold these funds actually contain, and whether or not gold can be delivered to investors in the case of a run on a metal, or another global panic.
- Stocks and Mutual Funds: Many analysts recommend investing in gold mining company stocks or mutual funds made up of these stocks. They claim the advantages of these are that they follow precious metals prices closely enough, while the current long term capital gains tax on these investments is a maximum of 15% while precious metals is at 28%. However, the risks far outweigh the potential rewards. The fact that you are investing in companies, that only release limited financial information, you don’t know exactly what you are investing in, if the companies are managed poorly, and profits drop, your stocks will go down in value, while gold prices may very well go up. Also, this investment option rarely moves in sync with precious metals prices, and if the overall stock market is down, there is a good chance your stocks will be down too, even if gold is up.
- Futures Contracts: A futures contract is simply a deal to trade gold at terms (i.e. prices and amounts) decided now, with a planned future delivery date, usually 3 months. Many active traders prefer this method because it is easy and convenient to trade large amounts of precious metals at the push of a button, or a phone call, than handling the physical commodity. However, this is a tool for short – term speculators, and people who track the markets full-time, to make money with heavy margin borrowing. There is only a small amount of people who have the time, and resources to devote to futures trading, and even a large percentage of them end up under-performing the general gold market, due to the speculative nature. Also, the heavy margin activity involved in this type of trading can make the losses pile up very quickly.
- Physical Holdings – This is the tangible ownership of precious metals. This is owning a physical asset, that you can maintain possession of, at all times, and see, feel, and touch. The main advantages of choosing this investment option are; physical ownership of your investment that can be safely stored at a vault, safety deposit box, home or office safe, or sent to a depository institution; Privacy and lack of reporting requirements that are standard with most other forms of investment; Advantage of premiums on physical precious metals that appreciate over time that cannot be realized otherwise; Ultimate protection from bank failures, hyperinflation, and other worst-case scenarios.
Here at Oxbridge House we believe that precious metals should be a long-term investment. Most people don’t have the time, or patience to actively manage their investments on an everyday basis. Physical ownership is the best option for those individuals who would like to have a portion of their portfolio in precious metals for the long term, preferably at least 10 years. Although it is extremely difficult to try and predict the short-term price movements of the precious metals markets, there is a very good chance that gold and silver will continue to appreciate in value over the long-term, based on the history of the last 5000 years. The Account Executives at Oxbridge House will work with clients to help them achieve their investment goals, while offering the most competitive prices in the industry.