There are plenty of good reasons to invest in commodities, but if you are new to investing that is probably a better way to think of it. Commodities speculation is about the riskiest place to deploy your savings: it’s really in a different category than investing. Commodities exchanges are really supercharged betting parlors made up of a series of hyperactive markets where you can invest on the price movements of a variety of products. The list includes precious metals, raw materials, grains and meat, oil and gas — even financial products like Treasury bills.
Though they carry big risks for individual investors, commodities markets were originally set up to help spread the risk of price changes among a large pool of players.
Using futures contracts, for example, a farmer can sell a crop before it’s planted, even though he might get a better price in the future (which is where the name comes from.) If a boom in demand drives up prices by harvest time, the buyer of the futures contract wins. But if a bumper crop floods the market and prices plunge, our speculator could lose everything. No matter what happens, the farmer has enough money in the bank to buy the seed for next year's crop.
- Be familiar with the five principal ways to invest in gold and precious metals: tangible coins and bars; certificates; precious metals mutual funds; stock in mining companies; and gold and metals futures.
- Go with coins or bars if you are interested primarily in safety and diversity.
- Break down tangible precious metals into its subcategories: bullion and numismatics. Gold bullion (or bars) is pure or almost pure gold. Numismatics is minted coins, which often commemorate special occasions.
- Search for both online and brick-and-mortar precious metals dealers. Find out how long the dealer has been in business, whether he or she specializes in one segment of the market, and who the typical client is.
- Shop around. The markup on coins and bars will vary.
- Educate yourself about the numismatics market. The design and condition of a coin can affect its price as much as the precious metal contents itself.
- Choose certificates if you would rather not store anything. A certificate represents ownership of a certain quantity of a specific precious metal.
- Consider stocks and funds for additional choices. Precious metals funds, because they are diversified and managed, are the most stable. Stocks are less stable, because you're buying into only one company.
- For a higher risk/higher potential return alternative, consider precious metals futures if you feel confident of your ability to predict whether the value of metals will increase or decline.
- Futures are a contract to buy or sell metals at a particular price at a specific point in time. Doing well with them depends solely on what happens to the value of those metals during the contract term.
To put your investments safely and to earn better returns through investing in Precious Metals, feel free to consult us at GIIS Financial.