Investing in Precious Metals

September 07, 2015

Precious metals are one of the ways to preserve your capital. In periods of economic instability, they can be a good alternative to stock market investments and may bring significant capital gains. 

There are a number of ways to invest in precious metals: 

■  physical gold bullion 

■  an unallocated precious metals account 

■  exchange traded funds (ETFs) that invest in precious metals 

■  margin transactions with XAU/USD and XAG/USD currency pairs 

■  futures contracts. 

Each of these options has a number of specific advantages and features.

Physical gold is an instrument for long-term investment and portfolio diversification. The minimum amount per transaction is 5 kg. A purchase of gold bullion carries additional expenses related to delivery and storage. It has the advantage of serving as collateral if you require financing. 

An unallocated precious metals account allows easy conversion of funds on the account into ounces of a precious metal. This approach does not involve expenses on storage and transportation of gold bullion. 

Precious metal ETFs allow investors to invest in precious metals markets through listed, liquid securities. They are designed to track and represent precious metal prices and are backed by physically allocated precious metals. The shares of such ETFs are freely tradable on U.S and European exchanges.

Margin trading and futures contracts are more suitable for active investors who are looking to profit from short-term price movements in the underlying precious metals. This approach allows investors to use leverage and does not require large amounts invested capital. However, it carries additional risks due to its highly speculative nature.