The economic crisis experienced worldwide beginning in late 2007 generated a negative impact on any individual connected to the financial markets. From then until now, many individuals have turned to precious metals investing as a way to hedge against economic uncertainty and continuing inflation. They have chosen a variety of precious metals trading instruments including the purchase of bullion coins and bars, certificates, mining company stocks, mutual funds, and ETFs (exchange traded funds).
For at least the last decade, it has been extremely easy to evaluate the worth of the four major precious metals commodities that include gold, silver, palladium and platinum. Unlike traditional bonds and stocks, or other trading instruments including real estate, precious metals can be traded, or converted into cash, nearly anywhere in the world in an open market.
The Impact of a Down Economy
Since the beginning of human civilization, precious metals have been used as a way to store value. Because of their easy portability, many nations have utilized gold, silver and other precious metals, by minting them into currency. Precious metals investing proves to be a worthy strategy, because it provides a source of increased profitability, even during times of economic instability. During a down economy, when inflation begins to spiral upwards, or there is political unrest, precious metals investing holds strong. Today, precious metals investing continues to protect against risks of inflation and the devaluation of worldwide currencies.
An Effective Strategy
There are numerous available options for an individual that is interested in precious metals investing. An effective strategy focuses on the purchase of bullion coins and bars. Bullion bars tend to have high levels of metal purity (.999%). Additionally, numismatic (collectible) coins have an additional intrinsic value above the worth of its metal content.
Investing in precious metals futures contracts tend to place the investor in a highly leveraged position, and can at times be extremely volatile. Some investors turn to mutual funds and exchange-traded funds (ETFs) by developing precious metal investment strategies. An investor can purchase an ETF for a single metal, or those that are based on multiple metals, as a way to diversify the potential of volatility.
Mutual funds are another way to invest in the precious metal, although positioning in the market can often affect the final price. Others elect to invest in mining stock. However, the stock is actually based on the worth of the mine, and not directly related to the metals it produces. Any investor that uses any of these strategies can minimize their risk by actually holding physical assets of these precious metals.
One of the benefits of purchasing physical bullion bars and coins is the ability to store the product away, and out of sight. ETFs and other methods of attaining the many precious metals are generally considered to be “collectibles”, and are not deemed as a capital asset by the Internal Revenue Service. This means it can be taxed at the current maximum rate for income, instead of the capital gains rate. However, if it is maintained in an IRA or 401(k), it is often considered a distribution that might be taxed at traditional rates. No matter what, it is always wise to seek the advice of a tax professional before making any investment.
Even as many of the world’s economies are turning around, and getting back on track, precious metals investing is still a worthwhile solution, especially when diversifying a portfolio. Many experts agree that gold, platinum, silver and palladium will continue to rise in price over the next two to three years.