How to invest in precious metals

How to invest in precious metals

This is the 2nd in Guest Posts from my Canadian buddy Joe who is seriously clued up on trading in metals, specializing in silver trading. We met in Australia and he has shared his passion for finance with me for years, even if our homelands are now 1000’s miles apart. Money talks…

How to invest in precious metals

There are several ways to investing in precious metals.  There is always own the physical metal.  Put it in storage and pay the fee and you know the metal exists for when there is a rainy day.

Owning mining stocks can be a big plus or minus depending on how they turn out.  If you invest in juniors they are especially volatile but the payout could be huge.  I would do minimum risk.  Only invest in what you’re willing to lose.  Make sure you to a lot of research such as look up the team that runs the operation.  Make sure they are turning a profit (which is tough in this market). Even though they may be big players (Barrick gold or Gold Corp), read there press releases.  These two big guys have lost mines and barrick took a $10 billion dollar right down earlier this year.  Juniors are where I would look with a few dollars and just sit back and hope it pans out.  The big guys generally won’t pay out like the juniors.

Options are another route to take.  Options are bets that the price will go up or down from today and you make the difference on either way your bet.  You can also sell options saying you don’t think a share or stock will drop to a certain level and collect a couple dollars while you sit on the stock.  Be prepared to pay up if your bet goes sour.

There are also futures contracts and exchanges.  Good luck on that one.  Anyone who has followed this market can see it’s extremely volatile.  Most trading done on the COMEX market is settled in cash.  When you travel east Shanghai has just set up an exchange and they settle their contracts with physical gold.  The COMEX still dictates the prices worldwide as they are much bigger than the Shanghai exchange but this is an interesting area to keep your interest in.  They are only about a year in.

ETFs are another one that people seem to dabble in.  They are good as they play on a variety of stocks (kind of like a mutual fund) or some are on the bullion themselves, but they are way more liquid.  You can buy and sell them much easier than owning stocks or bullion.  Usually there is a small fee tied to them so look into that before getting into it.

Finally we have mutual funds.  Mutual funds take in the sector and a manager breaks down the weighing of the shares to their discretion and trades on behalf of the parameters set out by the fund.  You pay into these funds and there usually are minimums to pay and should find out if there open ended or close ended.  Open ended means the funds can keep growing where as a close ended means there are only so many shares (capital) available for the fund.  Also beware of the exiting fees related to these.  There are penalties for leaving early or just plain leaving at all.  Read all the fine print on these bad boys before you sign up.

  1. I seriously never thought about investing in gold or any metal but I have a few friends that do it, some do jewelries. I’ve always been too careful to be investing in risky stocks but I understand that sometimes you have to risk it to make it big. I just haven’t found the right situation yet.

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