Guide to investing in precious metals
Investing in precious metals – basic information
When planning to invest in precious metals, it can be difficult to determine the best strategy. The metals market has many options available, with choices of Gold, Silver or other metals as well as different means of buying them. In this article we will provide you with valuable information, that will help you enter the market as an informed investor.
When looking at Gold or Silver on the internet, a spot price chart may be the first thing you will find. The spot price of a metal is the price per gram or troy ounce that it is being traded at large exchanges such as COMEX. This is the price quoted for the purchase and sale of futures contracts. Of course, fees are added onto the price.
Physical precious metals
Many people are surprised to learn that physical metals can trade at significantly higher prices than the spot price. The sport price quoted by futures contracts however is for the purchase of “Paper” assets. While sometimes there are ways to purchase physical precious metals at spot price, it may not be possible for a retail investor to do so.
In general, the higher quantity of purchase someone makes, the cheaper the price per gram will be. Institutions buying tonnes of Gold will get it at a much lower premium than a retail investor. They may even be able to buy it at spot price. On a lower scale this also applies, a larger coin or bar of gold or silver will cost less per gram than a smaller one.
A premium is the amount a buyer pays over spot for a coin or bar. For example, if silver spot price for 1 troy ounce is Є20 and you purchase a silver coin for Є 27 then you have paid a premium of 7/20*100 = 35%. Premiums are common in various gold and silver pieces as there is a labour cost associated with refining the metal and stamping it into a coin or a bar. Silver in all forms also attracts a VAT rate of 23% in Ireland, which contributes to large premiums in silver.
After learning about premiums in the physical metals markets it may seem as though it is not worth it, however when it comes time to sell your metals you will find that people are willing to pay a premium for them in the private market also.
How to get the lowest premium
When thinking about investing in metals, most people think that lower premium coins or bars are the best choice, however this is not always the case. It is true that in general a low premium coin or bar, that is in mint condition is a good choice. The lowest premium items or even items sold at spot price, however, might not always be a good investment.
Usually, items that are sold at such low premiums are items which are not desirable, and so, they are difficult to sell. While items that carry premiums tend to be desirable and more liquid. We see this at the extreme end in coin collector markets where a coin might sell for many multiples of its precious metal content value.
And so, the more logical goal for metals investors is not necessarily to get the lowest premium, but instead to get a coin or bar at the lowest market price possible.
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Disclaimer: This is not trading or investing advice. Please do your own due diligence before buying or selling any asset. Your financial decisions are your own.