The 4 most common ways to invest in Precious Metals

Investing in precious metals can take several different forms ranging from equities to hard metal to much more sophisticated derivate products like precious metals futures and options. In general, however, the investment activity in the precious metals market is driven by broader market and economic conditions or the macro level indicators. Below we outline some of the ways investors can get exposure to the precious metals market.

Investing in physical precious metals, in general, carries a higher perceived investment value than investing in financial instruments. Physical metal in the form of coins and bars provide a sense of security when investors can actually see and feel their investments. Coins can also be perceived a better investment over bullion. Gold coins, for example, are perceived to have a higher value than gold bars particularly in times of economic crisis. When confidence in and subsequently value of paper money falls considerably investors start factoring in a broader currency crisis resulting in going back to the gold standard.

Precious metals mutual funds like other funds are based on specific objectives. Generally mutual funds are classified as growth, income, balanced, or some form of combination. BMO Precious Metals, for example, provides long-term growth. Precious metals funds can invest in companies in the exploration, mining or distribution space. They are also open to investing in financial instruments like certificates or futures or straight metals in the form of coins or bullion. It all depends on the fund objective. A few popular precious mutual funds:

Investing in the precious metals equities simply involves trading shares of companies engaged in precious metals exploration, mining, or distribution. Investing in equities in general is relatively higher risk because now investors are exposed not only to the precious metals price risk, but they are now exposed to other risks such as labor market risk, organizational risk, and for those engaged in international mining and exploration are exposed to international political and economic risk.

The futures market is an extremely risky market but the rewards can be enormous. Futures contracts are financial instruments traded on an exchange. In general, a futures contract specifies when and how much of a metal will be delivered on a specified date for a specified price. Investments in the precious metals futures markets are highly speculative as investors effectively guess the future price of the metal.

Before you invest in precious metals mutual funds, check out latest research and analysis on the precious metals market. As well, our analysts offer in depth analysis on the precious metals futures market.