The Ultimate Beginners Guide to Precious Metals in 2018

Precious Metals

The Ultimate Beginners Guide to Precious Metals in 2018

When you are just starting to invest in precious metals, your biggest question is what you should buy?

One of the key things you should not do is to buy collectibles or numismatic coins. Most sellers charge a high price for these items. This raises the question of which the most suitable metal for you is to buy.  This article will talk about how you can go about making your decision about which precious metal to buy and whether the bullions, coins, bars, and rounds will be suitable for you.

Should You Go for Platinum, Gold, Silver or Palladium?

Precious Metals

The price of silver seems to have gone down against the price of gold. The current ratio of gold to silver is 60.  This means that if you would like to buy gold,  it will cost 60 times much more than silver. For a long period, the ratio has been lower. This is in addition to some market basics that affect the force of supply and demand. This shows that silver will do better than gold for a long time to come.

For a long time, having gold in your portfolio provides security and stability. Most people see gold as being more secure. That is why even if people refer silver when it comes to periods of uncertainty, most people will revert to investing in gold, whether you buy gold online or buy physical gold. Buying gold coins for investment is also one great idea.

For those people who want to diversify their portfolio, platinum and palladium are a good option. This is for investors who want to invest more aggressively and get high returns. Platinum costs less than gold making it a viable option. Platinum and palladium are often traded as industrial metals rather than precious metals. Therefore, when you are making this investment, it is like speculating on the worldwide manufacturing industry.

Precious Metals General Guidelines

  • If you intend to preserve your riches and you want security by investing in something that is stable, then your best option is to go for gold.
  • If you want to preserve your riches, but you want to have the potential to earn much more in future, then invest in silver.
  • If what you are looking for is diversification by investing in alternative metals, then platinum and palladium are your best bet.

The Purpose of Your Bullion Investment

There are several reasons why you might want to include precious metals in your portfolio: Why you should buy precious metals.

  • It will appreciate the long-term
  • This is a good way to diversify your money
  • It might be a holding in an IRA; precious metal IRA
  • There’s a chance for you to use it in barter trade or trade in it
  • As a form of speculation for instance in the silver to gold ratio

investments in metals

If your intention is to go for a long-term investment, then you need to find the lowest premiums possible. This is because in a bull market, how much ounces you own will determine how much you gain. Therefore, if you can pay low premiums for your investment, then you will be able to buy a lot more ounces. Generally, premiums go down as the price of the metal goes up.

Before you make a purchase, think about and ask yourself “is it easy to sell my gold?”. This is because you are likely to want to sell it off at some point.  It is not a good idea to purchase 1,000-ounce silver bars. These bars generally have low premiums. Not many investors want to buy these bars; therefore you will be limited in the market when you eventually decided that you want to sell. This can even be more difficult if you want to sell fast to a small coin dealer rather than a national corporation like the Money Metals Exchange or the American Precious Metals Exchange.

If you have a self-directed IRA that is dealing with precious metals, such as gold IRAs, then aim to get low premiums. This kind of investment tends to go up in value over time. However, there are some metals, such as the pre-1965 90% silver coins or gold Krugerrands that you cannot be allowed to hold in your IRA due to their purity levels and the regulations that are in place. These coins are not pure. They can only be a good investment if you are a collector of rare coins or an expert.

There is always a possibility that the currency market could collapse, and the economy could revert to using precious metals. However, a lot of people do not think that this possibility exists while others think that it does.

However, history shows that something like this could happen. There are various case scenarios where currencies have been affected. This is usually because of mismanagement of funds by governments that borrow and spend a lot. This leads to their money getting devalued such that it can no longer be used as a medium of exchange. People who are more farsighted have invested in bullions of little denominations in their portfolio. This is because such smaller sizes, such as fractions of gold and silver are easier to sell off or are much easier to manipulate.

Don’t Lose Your Position by In and Out Precious Metals Trading

If you own precious metal, do not trade out of your core holding. This is because the precious metal market is quite volatile. Small changes in the news can make great quite a huge difference in this market. If you would have already traded out your position, you could lose out on a great opportunity. Instead of trading out, consider swapping your metal for another one. For instance, you can trade gold for silver.

The current gold/silver ratio is above 70. This is in favor of overweighed silver. If gold prices suddenly rises, then it will be more logical to trade in silver for gold. A lot of experienced investors use this strategy to earn more from the market without ever having to leave the market completely.

Keep Transaction Fees Low

When you are dealing with bullions, your key aim should be to keep the transaction fees as low as you can. There are two major fees that are involved when transacting in bullions.  This includes the buy-sell spread. This is defined as the difference between the fees you pay when buying the metal and the fees you pay when you are selling it. The other fees you must pay is the cost of shipping.  You also need to think about another fee sales tax.

What Are Your Interests?

The buy spread is usually low, but it also varies depending on whether you are buying bullions or other types of gold. When you are buying bullions, the cost does not vary, but it varies depending on whether you are buying American Eagle coins, buy gold coins US mint or whether you are purchasing other types of gold or silver bullions.

Buyers have different preferences and are usually ready to pay more for what they like.

For instance, some buyers like American Eagles as they are attractive and well known, therefore they can pay a premium price for them. Other buyers like pre-1965 silver coins due to their low fees, the fact that they are easy to sell and can be used as a currency based on their face value. Most buyers who go for this option have no problem with the fact that the coins are old, and their value is prominently displayed on the metal.

There are precious metals prices charts above that list the advantages and disadvantages of different kinds of bullions so that you can pick the one that works best for you based on your needs, costs and how much you are willing to spend.

Precious Metal Options and Investments in Metals

Investing in precious metals is a good way to diversify your investments. There are so many choices to select from. This includes gold, silver, platinum, and palladium. They can be used as a protection against inflation. A lot of people tend to believe that precious metals will retain their value even though other investments might lose it.

Precious Metals Trading

Nevertheless, these investments in metals also have their risks, the main one being their unstable prices. This is what has made many people not invest in them. If you want to control your risks but still get to invest in precious metals, then you can choose to invest in metal options.

If a metal has an option, this means that it has a contract that allows you to buy or sell a specific quantity at a specific price that is known as the strike price. This must be done by a given expiration date even though it is not a must for you to sell by this date. That is why it is a buy or sell option. When dealing with a European option, you must buy or sell it by the given expiration date. With an American option, you can buy or sell it before the expiration date. You do not have to wait for the expiration date.

The worth of options is based on the worth of the underlying asset. A call option makes it possible for you to buy a certain amount of the metal. A put option allows you to sell a set amount. An option premium is a rate at which you will purchase or sell the option. This can be affected by so many things, like the options strike price, how many days are remaining until expiration, the stability of the underlying asset and the interest rates. All these factors affect the risk of the option.

Using a Call Option

You can use the call option if you think that the price of the metal is likely to go up but you want to minimize the risk of metal investing. You can use a call option in this case. When you buy the call option, it means that you have the chance to buy the required amount of silver that you want. If the cost of silver goes beyond the price you anticipated, you can then buy it by exercising your call option. You can then sell the silver at a profit at the higher price.

You even have the choice of using the call option to let another person purchase any metals that you might be holding. In such a scenario you will earn additional income plus make some money from your investments in metal. This is like being paid a dividend on your investment.  IF you’d like more information on covered calls, check out my article that specifically walks you through it by clicking here.

How to Benefit from a Put Option

Buying a put option will protect you when the price of the metal goes down. By paying a strike price, you ensure that you will be able to sell the metal at a given price and minimize your losses. You can also write a put option for someone else. This allows them to buy the metal from you at a given price. In this case, you should be ready to purchase the metal at a high price than the market value.

Complicated Strategies

There are more intricate options when it comes to precious metals trading than just using call and put options.

For example, you can choose to purchase a call option which has a low strike price, while at the same time purchasing a call option at a higher price while having similar expiration dates. The cash you get from one call option will cover the cost of the other call option. If the price is right, you can gain from the purchase you made in the money. The option you made to sell out of money will help to cover part of the cost of the premium for the option you opt to purchase.

In the same way, you can choose to purchase a put option at one strike price and sell it at a different strike price. You can also buy a put option and call option at the same strike price with the same expiration dates so that you will be protected whichever way the price moves.

Conclusion

Investing in precious metal options gives you the opportunity to invest in metals even if you do not have a lot of money in cash form.  With the instability in the market, you might even opt to trade on margin. If you have bought some metals, it is advisable that you insure yourself against losses, so that you are not affected greatly in case the market does not move in your favor.

 

Important Disclaimer: Learn to Trade for Profit provides educational education. We are not trading advisers and we do not make suggestions to our visitors to buy or sell any particular commodity or security. The information on our website is based on personal opinions and is to be used for educational purposes only. Any actions you take based on the information on our website is to be at your own discretion. Trading Is Risky: Never, ever trade with funds that you cannot afford to lose. All trading investments (Forex, stocks, options, futures, etc.) are risky. Never trade with borrowed funds or your life savings. U.S. Government Required Disclaimer: Commodity Futures Trading Commission. Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.