Questions To Ask Before Investing In Precious Metals
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Have you had bad experiences with stock investments and are now looking for an alternative? Precious metal investments are just what you need. But before you jump onto the band wagon, there are certain things you might want to know. These include:
Should You Invest In Physical or Paper Commodity?
The entire purpose of investing in physical commodity is that the investors own the asset and there’s no liability. However, there’s another way in which you can invest in precious metals.
This is done through gold and EFT certificates. These certificates are traded over an exchange. However, their drawback is that you can’t trade them in return for an asset. Therefore, if the issuer defaults, the person holding the certificate becomes the creditor.
Where Will The Metals Be Stored?
People invest in precious metals because it’s comparatively less risky. Therefore, you should also make sure you have them stored with a reliable third party.
There are several reputable storage providers that offer insured storage. Furthermore, gold certificates are stored at reputable institutions which include J.P Morgan and HSBC.
Do You Get Mark Up on Spot Prices?
When you purchase precious metals in the form of coins or bars, you usually get a markup of 2% to 8% on the spot prices.
In comparison, exchange traded funds are sold at the same prices as their physical counterparts. However, they also charge additional fees which include trading and insurance costs. Close end funds are similar in nature but they’re offered at a discount.
Should You Go For Allocated or Unallocated Metals?
A benefit of allocated metals is that they offer a high level of investor security. Furthermore, the holder of the metal also gets the ownership title. These metals can’t be leased and/or lent to third parties.
In case of unallocated metals, you don’t get the ownership title. The investor is also at credit risk in case of a default. However, these metals can be lent to third parties.
What Are the Costs You Need To Look Out For?
Apart from the cost of bars and coins, some additional costs that you need to watch out for include storage and insurance. In addition to that, if you’re dealing with certificates, you’ll have to pay management fees as well.
Precious metals are considered a long term investment and therefore, it can be tough for you to sell them in case you’re in need of cash urgently. However, selling certificates is a lot easier.