How to Invest in Precious Metals

Physical Investment
Physical Investment
Bullion/bars are conventionally weighed in troy ounces and more recently kilograms. Other measures of weight are also sometimes used; investors may see reference to tael and tola bars, these represent traditional units for weighing gold and silver in China and India respectively.

Aside from weight, the other important factor is purity or fineness, expressed as the proportion of gold in an alloy as parts in 1,000 rather than a percentage. here are three standards for purity generally acknowledged by the LBMA (London Bullion Market Association); 995.0, 999.0 and 999.9 fine.
However, the nominal fineness of a Hong Kong tael bar is 990.0. Bar weights and associated fine gold contents recognised by the LBMA are presented in the table illustrated below.
Coins represent an extremely popular medium for holding precious metals, particularly amongst retail investors. Coins come in a massive assortment of sizes and designs and can be highly collectible. Gold coins are legal tender of the country of issuance and their gold content is guaranteed. The true value of a gold coin is based on its gold content, the price of gold on the day and a modest premium of normally between 2% to 10% depending on collectability. As with bars, storage and insurance of coins can come at a cost. see also the Physical Investment section of this website.

For investors wishing to purchase larger quantities of physical precious metals without the inconvenience and risk of personal storage, a depository or certificate programme is worth considering. The supplier or depository will store an investor's precious metal in either allocated or unallocated form. An allocated deposit is lodged in bar or coin form and attracts storage fees. An unallocated deposit is an unsegmented interest in a pool of gold or silver, and does not attract storage fees (for more detailed information regarding storage options, see the Storage section of this website.

Electronic Investment
Electronic Investment
Thanks to new technology, a new breed of bullion service has emerged – electronic bullion and currencies back by gold, silver or platinum. It works on the same principle as many online banking services, but backed by precious metal as its foundation, as opposed to paper credit. These companies actually have bullion that is stored on an allocated, pooled type of account that is divided amongst the account holders on a measure of grams. This can become an extremely powerful medium where you can pay your bills for every day items by electronic transfer or debit card into a variety of paper currencies, whilst retaining your wealth in a real hard asset that is independent from any fiat currency fluctuations. There are a variety of electronic currency exchange services that can allow you to wire funds to friends and family abroad as well as purchase good and services in another country with relative ease, which is also cost effective. see also the Electronic Investment section of this website.

Mutual Funds/Unit Trusts
Mutual Funds/Unit Trusts
A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities which are managed by an investment/fund manager. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. The noticeable rise in the price of resources & commodities recently has seen the emergence of several 'global resource' funds/unit trusts with some even investing exclusively in precious metals. You should contact your own independent investment advisor for further information regarding this type of investment.

Mining Company Stocks/Shares
Mining Company Stocks/Shares
Minerals exploration, mining and the processes used to produce metals is a technical business. Therefore investors in gold or silver mining or exploration company securities should equip themselves with a rudimentary understanding of the industry, in order to identify basic possible pitfalls and the risk reward relationships of taking the plunge into this sometimes complex but fascinating and potentially highly rewarding realm of investment. You should be aware that this method of investment can be considered to be somewhat volatile and therefore not for the more conservative investor.
Furthermore, in the realm of gold and silver investment and gold and silver mining, there is considerable jargon, which can be daunting for the uninitiated. You can refer to the Mining Glossary section of this website or alternatively, a useful glossary of gold, silver mining and securities markets related terms can be found at The London Bullion Market Association (LBMA).
You should contact your own stock broker regarding this method of investment. Alternatively, there are several 'DIY' internet share-trading websites available for the more confident investor, often with low brokerage rates available.

ETF (Exchange Traded Fund)
ETF (Exchange Traded Fund)
An ETF tracks an index, commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order. Gold ETF's do already exist around the world and there has been much excitement recently over a proposed Silver ETF in the United States, which is awaiting final regulatory approval from the Securities and Exchange Commission and this would appear to be not too far away(1). You should contact your own independent investment advisor for further information regarding this type of investment. (1) Silver ETF approved 27 April 2006

Futures
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.
Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.

Trading gold futures, for example, can be a high risk, volatile form of investment in that the US dollar gold price tends to trade within a broad range in the long-term and can also exhibit significant short-term fluctuations and you should only consider this if you are fully aware of the risks and consequences. Consult your own stock broker or financial adviser for more information.

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		How to Invest in Precious Metals