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Buying Precious Metals

Buying Precious Metals : Precious metals offer safety to investors in times of financial volatility. Unlike bonds, they do not rely on any issuer's promise to pay and are thus free from the risk of default. The prices of precious metals also rarely see the kind of violent oscillations associated with the share markets.

Since the prices of precious metals and paper assets often move in opposite directions, diversification of a portfolio into gold, silver and platinum reduces its overall risk. A short profile on each precious metal is given below.

Gold

Gold has historically been used as a medium of exchange. It retains its purchasing power over the long term and provides a hedge against the erosion in the value of paper assets like stocks, bonds and currencies. Moreover, it is a highly liquid asset and is universally accepted as a mode of payment. Even though world currencies are no longer backed by gold, most central banks continue to hold gold as an asset.

Individuals buy gold either for investment or for making jewelry. There are some industrial applications of gold but even the small quantities used there are normally recycled. Very little gold actually gets consumed. The annual production of gold from mining is quite small and is roughly equivalent to the amount consumed each other. Due to this equilibrium, the world's stockpile of gold remains more or less constant. Changes in the price of gold are thus a function of demand and not supply.

Silver

Silver has been widely used as a currency in the past. Whereas gold was used in government- to-government transactions, silver, being relatively plentiful was used by the common man for his everyday purchases.

The demand for silver in industrial applications is on the rise. It is widely used in the electronics, medical, water purification and photography industries apart from its traditional application in the jewelry business.

Today silver is a relatively low priced commodity but with demand outstripping supply, a bull run in silver is widely anticipated.

Platinum

Platinum is a very scarce metal and its annual production is about a fifth that of gold. Platinum deposits are found just in two countries, Russia and South Africa. Both these countries are not politically stable. Any disruption in the supply of platinum from either of these countries will send prices soaring.

There are innumerable applications of platinum in industry. The jewelry and automobile business account for about 75% of the world's production in platinum. The other 25% is used in a wide array of consumer goods such as pacemakers, eyeglasses, colored paints, lasers, endoscopes, jet fuels, pollution control etc.

Due to its strong demand and limited supply, platinum is considered an excellent investment option.

How to buy precious metals

There are five ways to buy precious metals:

1. The traditional method of buying precious metals is to purchase coins or bullion (bars or ingots) from a metals dealer. Buying bullion is like buying pure metal. The value of coins, on the other hand, lies not just in the metal but also in the intricacy of their design. Many people like to feel and play with their gold or silver coins.

2. Buy precious metal certificates if buying precious metals bullion has no charm for you. A certificate represents ownership of a certain quantity of precious metal. Buying a certificate will also save you the hassle of getting your precious metal assayed as well as storage costs.

3. The simplest way to invest in precious metals is to buy shares of a precious metal exchange-traded fund (ETF). You can buy and sell these shares from your home with the click of a mouse. Both gold and silver ETFs are extremely popular with investors.

5. Sophisticated investors with deep pockets are commonly buying precious metals through futures on the commodity exchange. A future is a contract to buy or sell a commodity at a particular price at a particular point in time. Trading in futures can give very high returns but it also carries high risks and is definitely not for the faint hearted.

Fraud In Buying Precious Metals

The US Commodities Futures Trading Commission (CFTC) has investigated several companies who have induced investors into purchasing precious metals by promising large profits with little risk.

The modus operandi followed by these fraudulent companies is as follows. They issue radio, TV or internet advertisements promising to double or triple the customers investments in two or three months. The customers who respond to these advertisements are asked make a small down payment for buying a large quantity of precious metal. Financing is arranged for the balance amount. The companies claim that they will purchase and store the metal. The unwitting customers are then charged a commission for the purchase transaction and for the processing of loan besides the interest on the loan. They may also receive additional fees for storage and transportation of the fictitious precious metal.

Further information regarding fraud in commodities trading is available on the CFTC website (www.cftc.gov).

Conclusion:

Buying Precious Metals is an excellent investment that can provide stability in your portfolio, as additional markets such as China require more and more precious metals the chance of gold, silver and platinum increasing is excellent.

You can purchase from well established bullion houses that will store your metals for you at no charge or you may chose to take possession of your metals for an additional delivery charge. (realize you will need a safe place to store your metals yourself, safety deposit boxes are a good choice)

If you chose to take possession after buying your precious metals you can chose from either bars or bullion coins

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