If you’ve ever found yourself concerned about the future of the stock market and fiat currency, precious metals offer a viable alternative for building wealth. Unlike most investments, precious metals have real-world uses and therefore provide tangible value. But they’re not the easiest assets to figure out — they’re famously volatile, and there are a few different routes to getting involved. If you skip your research and don’t fully understand how to invest in precious metals, you risk falling into trouble.
Fortunately for you, we’ve compiled a complete guide to the process. We’ll go over the best ways to invest in precious metals, the pros and cons of the market, and specific considerations for the most popular precious metals (gold, silver, copper, and platinum). Then, we’ll explain how you can track your investments as you go.
How to invest in precious metals
If we asked you to think about how to invest in precious metals, the image that would enter your mind is probably someone buying physical metal bars. But this is far from your only option, so don’t let a misunderstanding of the different methods hold you back.
In fact, bars aren’t even the only way to buy physical metals — you can also buy coins, jewelry, or (in some cases) specific products like wires. Whichever physical variant you opt for, you might well like the comfort of knowing you own tangible assets and won’t be at the mercy of a middleman. However, this means you’ll have significantly less liquidity and will need to figure out where to store everything.
So, what’s the alternative? The introduction of financial products like futures, options, and CFDs (contract for differences) has offered more ways than ever to invest in precious metals. You can buy and sell the assets without having to physically own them, which eliminates the problems outlined above while still offering you the benefits of diversification.
A final option is exposing yourself less directly by opting for mutual funds or ETFs that contain stocks from related sectors (like mining companies) — or buying the company stocks themselves. This is arguably the easiest option of all since it doesn’t require an understanding of advanced trading products like those mentioned above — but it does bring a whole new set of considerations. For instance, your investments will also depend on the health of the mining industry.
Why invest in precious metals?
Most people invest in precious metals because they want to diversify their portfolio. If a significant portion of your investments depend on the stock market’s performance (which most do), your portfolio will take a considerable hit whenever there’s a crash.
To minimize the impact of a crash, you need to invest in separate markets that are affected by different factors — cryptocurrencies and real estate can tick this box, and so can precious metals. Investing in them therefore helps you to earn a more stable return and reduce risk.
Another reason to invest in precious metals is that they hedge against inflation. When we invest, inflation is our biggest enemy — it effectively steals value away from whatever we’re investing in. But when inflation is high, we typically find that demand for precious metals (and therefore the prices) go up.
If you’re worried about runaway inflation, metals will seem like a particularly attractive option.
What are the risks of investing in precious metals?
Yet there’s a reason that buying precious metals isn’t quite as popular as buying Tesla, bitcoin, or an S&P 500 ETF.
Above all, they’re extremely volatile. Although they reduce risk by diversifying your portfolio, they also expose you to a market that’s all over the place. We’ll give you some graphs that show just how volatile each precious metal is shortly, but for now, let’s just say that there are plenty of peaks and troughs.
Also, unlike investment assets like dividend-paying stocks, precious metals won’t yield you any income along the way.
If you opt to buy the physical form of precious metals, you’ll also have to front costs related to storage, shipping, and security (plus the money lost in transactions). You might think you’ll get around this problem if you invest in mining company stocks or advanced trading products like CFDs, but as we’ve seen, they come with another set of risks that can result in you losing a lot of money.
There’s no two ways around it — investing in precious metals leaves a lot of room for things to go wrong unless you really know what you’re doing. Investing your whole net worth into this asset probably isn’t the right strategy. However, given their benefits for diversification and combating inflation, it still makes sense for many people to invest a small percentage of their portfolio into these assets.
Popular precious metals
So far, we’ve talked about precious metals as if they’re all one and the same — but the truth is that different types of precious metals have different sets of considerations. Let’s go through the pros and cons of the most popular metals: gold, silver, copper, and platinum
There’s been lots of talk about investing in gold over the last couple of years due to fears that the fiscal stimulation packages governments have carried out to combat the pandemic would send inflation through the roof. Why? Gold is often seen as a safe haven: an asset that retains its value when inflation is high or there’s a lot of market turbulence.
Gold is a physical commodity that’s used to make items like jewelry and has to be mined, so it has some tangible value. And unlike fiat currency (like US dollars or Japanese yen), it’s not affected by monetary policy, the markets, or interest rates. While investment assets like stocks and bonds plummet when the global economy and financial markets perform poorly, gold tends to do pretty well.
As you can see below, the value of gold shot up dramatically in 2020. This is largely because inflation in the US hit its highest point in three decades in October 2021, and most countries have experienced similar phenomena.
Source: Macrotrends (https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart)
However, the other thing you’ll notice from the graph above is that gold is extremely volatile, and this isn’t unique to the 2012 to 2021 period — it’s held true throughout the asset’s price history. We weren’t kidding when we said that volatility is one of the biggest risks of investing in precious metals.
In the case of gold, the swings are mostly due to investor sentiments rather than supply and demand forces (unlike platinum, as we’ll explain later). Because people tend to buy more gold when they fear inflation will run rampant or the financial system will collapse, so gold prices are a way of measuring their predictions.
Political crises and other major events that make a country and its currency less stable also drive investor sentiments.
They say that not all that glitters is gold — in this case, not all that will earn you investment returns is gold. For investors considering branching out, silver is probably top of the list of alternatives. There are some similarities between the two assets, but as a whole, they’re very different.
Like gold, silver is usually seen as a safe haven asset since it’s not correlated with the stock market or interest rates. However, it’s actually even more volatile than gold since its value depends not just on market sentiments but also on industry demand for the metal.
Silver isn’t just used in jewelry (unlike what many people believe) — it’s used for a variety of electrical, medical, and battery products. Whenever a replacement or an alternative to metal is found or a new product that requires silver emerges, the demand and therefore price change.
As you can see below, silver’s value has fluctuated between $15 and $40 over the last ten years — whereas gold has fluctuated between $1,200 and $2,100. Gold might have bigger numbers, but the proportions are larger for silver.
It’s not for the faint of heart. However, silver’s inherent value and usefulness make it an attractive investment — especially for those in the know about the relevant industrial markets.
If you’re feeling more adventurous, you might venture into the land of copper. Physical copper trading doesn’t always get the attention it deserves, but done right, it can be highly profitable (just look at Mr. Copper’s success).
Like silver, copper prices are very volatile due to varying industry demand. Prices usually change every day (or even every minute!) due to the ever-changing demand and the performance of adjacent industries like manufacturing. This can mean fantastic increases; the price of copper went from $0.60 per pound in 2001 to $4.62 per pound in 2011. But it can also mean significant losses are possible.
On the chart below, we can see copper’s value ranged between $2 and $4.50 over the last ten years — not quite as much variation as silver, but it’s still extremely volatile.
However, as copper is in high demand in industry due to its electrical conductivity and thermal properties, it’s another asset with a lot of tangible value. Plus, demand could rise in the coming years as countries look to produce items that require copper, such as electric cars. If you’re willing to take the risk, copper investment could certainly pay off.
Now we’re getting really obscure. Not everyone is even aware that platinum is a precious metal since it’s left out of the Olympics, so expecting anyone to know how to invest in it is a lot to ask.
Platinum is another industrial metal that’s affected by market demand. It’s mostly used for catalysts (for vehicles and refining chemicals), and sometimes jewelry.
One standout feature of platinum is that it’s extremely rare — unlike gold and diamonds, which are seen as scarce despite their abundance, platinum is the real deal. Not much of it is produced each year, which arguably makes it more valuable.
However, it’s important to note that there are a couple of features that make platinum extra risky. Production mostly takes place in two countries (Russia and South Africa), which leads to potential supply issues or even cartels. Also, automotive catalysts are a major source of platinum demand, so the creation of alternatives would put the price of platinum at risk.
Platinum has broadly followed the same trends as the other precious metals, as the graph below demonstrates, with its value increasing during the pandemic and experiencing dramatic swings previously.
Track precious metals on Money Minx
If there’s one takeaway from what we’ve learned so far, it’s that only the pluckiest of investors would allocate their entire portfolio to precious metals. So, if you decide to proceed and use them as part of a diversified portfolio, you’re probably going to find that it’s tough to stay on top of everything.
The solution? A portfolio tracker app that connects to all your accounts and tells you your total net worth. For example, Money Minx connects to more than 16,000 different institutions — including various applications for precious metals. These include market leaders like Vaulted, JM Bullion, Kitco, Bullion Vault, and Apmex.
Whether you’re thinking of investing in physical bars or something less direct like mutual funds with metal exposure, rest assured that you can track it on the platform.
You can choose between connecting your accounts or adding them manually.
If you opt for the manual approach, you’ll see the following screen:
Then, you can choose the type of metal, its liquidity, and its value (these options appear after you click “next”).
Plus, if you’re trading any of the precious metals we’ve examined here, Money Minx will automatically update their value after you connect your account.
Say you want to add your Apmex account — you’d say you want to connect your accounts, search for Apmex, enter in your details, and the value of your portfolio would sync automatically.
After adding all your investments, you can see the value of your entire portfolio on one screen, track it over time, and even access projections for the future.
Invest in precious metals
Although there’s reason to proceed with caution when you invest in precious metals, they serve a key function: a way to diversify your portfolio and protect you from inflation. Why not allocate a percentage of your portfolio, as many great investors have done before you?
But don’t forget to keep an eye on what those metal markets are doing by using a tracker tool like Money Minx. A few clicks is all it takes to set everything up, and you’ll have a tool that becomes smarter over time as it learns about your portfolio and its performance. Why not create your free account today and start playing about with the features?