The Beginner’s Guide to Investing in Precious Metals

Talking about precious metals may conjure visions of a home safe filled with gold and silver.

But did you know that there’s a variety of ways you can make your precious metals investment? You could open a precious metals IRA, or invest in stocks, futures, or ETFs.

In this guide, we’ll discuss all the different ways you can invest in precious metals, the ins and outs of each, and how to get started.

5 ways to invest in precious metals

Option	Best for
Buy metals from a dealer	Owning physical precious metals, hedge against inflation
Open a precious metals IRA	Retirement savings and a tax break
Purchase precious metals ETFs	Those who don’t want to store physical metals
Purchase mining stocks	Benefiting from the metal industry as a whole
Invest in gold or silver futures	Those with high risk tolerance

1. Physical metals

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4 Best Online Gold Dealers

Buying from a dealer is the most straightforward way of investing in precious metals. It’s best for those who want to have physical assets in their possession.

How it works

If you purchase precious metals as a personal investment, the process is very similar to any other retail transaction. Dealers often have their inventory listed online. You select and pay for the items you’d like, and they are shipped to you. 

However, most dealers don’t list prices online, and you should expect to speak to a representative on the phone to complete the transaction.

What to know

Precious metals pricing constantly changes, and each dealer will have their own markup and fee structure. For this reason, comparing prices from several dealers before making a purchase is good. Don’t forget to ask about shipping costs as well.

Remember that fees may be assessed based on the value of your purchase. For instance, Fidelity charges a 2.9% fee on purchases of less than $10,000, but that charge drops to 0.99% for purchases at or greater than $100,000. The investment firm also has a $2,500 minimum for precious metals orders.

2. IRA

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Precious Metals IRA: How It Works and How to Get Started

With a precious metals IRA, you won’t be able to store your metals at home, but you will get a tax break and boost your retirement savings.

How it works

Standing for individual retirement account, IRAs come in two forms: traditional and Roth. A traditional account offers a tax deduction for contributions, but withdrawals in retirement are subject to regular income tax. 

Contributions to a Roth account are not deductible, but you will get tax-free withdrawals in retirement. With both forms, you might pay a penalty if money is withdrawn from the account before age 59½.

What to know

Only self-directed IRAs can be used to hold precious metals, which must meet IRS purity standards. You’ll need a specialized custodian to administer the account, and precious metals must be stored in an IRS-approved depository.

3. ETF

If storing physical metals sounds like a hassle, you could buy ETFs—exchange-traded funds— designed to track precious metals’ performance and value.

How it works

ETFs can be traded the same as stocks but may include a mix of assets rather than shares of a single company. Some ETFs hold physical gold or silver and offer a way for people to invest in precious metals without owning them directly.

GLD, GLDM, AAAU, and IAU are all ETFs that include exposure to physical gold. SIVR and SLV are funds that hold physical silver.

What to know

Although these funds hold physical precious metals and are intended to track their value, the actual costs of ETFs vary depending on the fund’s structure and fees. What’s more, even though you are investing in precious metals through a fund, you will not own the precious metals yourself.

4. Mining stocks

Buying shares in a mining company is another way to diversify your portfolio with precious metals without physically holding them.

How it works

Precious metals have value not only as investments but also for industrial uses, and the mining industry finds and extracts metals from the ground to meet that demand. Many mining companies are publicly traded, meaning you can buy stock in the firm. If the company increases in value so too should your stock.

What to know

Unlike the ETFs above, mining stocks aren’t based on physical gold or silver value. Instead, their value depends on the strength of the company itself. If you buy stock in a company that finds a significant store of precious metals in the ground, the value of your shares will likely rise. If not, the value may stay the same or decline.

HMY, GATO and KGC are all stocks for companies involved in the exploration and mining of precious metals, but they are far from your only options.

5. Futures

Buying gold or silver futures is an option that may be best left for sophisticated investors who have a high-risk tolerance. Significant risks are involved in trading futures so tread cautiously if you pursue this option.

How it works

A future is an agreement to buy or sell a commodity or asset at a specific price. There is the potential for significant profit if the agreed-upon price is lower than the market price at the time of the sale. Still, there is also the possibility of a large loss if you are obligated to buy an asset for more than it is currently worth.

What to know

There are also gold and silver options, which are similar to futures but with less risk. These give you the right—but not the obligation—to purchase at a certain time.

Both futures and options are advanced investment strategies and should not be attempted alone. Seek an experienced and trusted investment advisor who can clearly explain the pros and cons and guide you through the purchase process, if deemed appropriate.

Our tips for investing in precious metals

Invest long term

While the value of precious metals has historically increased in the long term, their value can be volatile in the short term. That means this isn’t the type of investment you purchase in the hopes of quick gains. 

Instead, you should buy precious metals to provide a hedge against inflation and a safety net during economic and political unrest.

Consult with a tax specialist

Like other investments, precious metals are subject to capital gains tax. However, you only pay this tax when you sell your precious metals, and it is only assessed on the gains—that is, the growth in value—of your investment. 

For instance, if you buy $10,000 worth of gold and sell it for $15,000, the gains would be $5,000.

However, if you use a precious metals IRA, you could reduce your taxes. A traditional IRA provides a deduction for contributions to the account while a Roth IRA offers tax-free withdrawals in retirement. Talk to a tax and retirement specialist for more details.

Diversify your portfolio

A diverse set of investments is key to weathering financial storms since each asset class may respond differently under various economic conditions. For this reason, most finance professionals advise against keeping all your money in any particular asset—stocks, bonds, real estate, or something else.

The same is true with precious metals. Opinions vary, but many in the industry advise holding no more than 20% of your assets in precious metals.

Get insurance coverage for home storage

If you keep precious metals at home, there is greater risk of theft. We strongly recommend insurance coverage to protect them. 

Alternatively, you could store your precious metals in a depository—which is required of precious metals in an IRA—but annual expenses will apply.

Read More

Best Depositories for Gold IRAs

Be aware of common gold investment scams

There is also the question of ensuring you get good value when purchasing your precious metals. Unscrupulous dealers or scam artists may deliver inferior metals or charge exorbitant mark-ups.

Read More

6 Gold IRA Scams to Avoid

How to invest in precious metals

Investing in precious metals will vary depending on your selected option, but you can follow these steps to get started.

Decide how much to invest

Before purchasing any precious metals, ETFs, or stocks, you must know how much of your portfolio you plan to devote to this asset class. Diversification is essential, and you shouldn’t put all your money into any one investment.

Research your options

Whether you are planning to buy physical gold, a silver ETF, or a mining company’s stock, you must research. Check the prices from several precious metals dealers before purchasing and consider the long-term performance of ETFs and stocks before buying shares.

Create a funding schedule

Finally, decide how you plan to buy your investment. While investing all your money at once can be convenient and may result in reduced fees for physical metal purchases, there is also a case for dollar-cost averaging. This approach involves making regular yearly purchases to manage the risk of rising prices.

Takeaway: Which is the right precious metals investment for you?

Option	Best for
Buy metals from a dealer	Owning physical precious metals, hedge against inflation
Open a precious metals IRA	Retirement savings and a tax break
Purchase precious metals ETFs	Those who don’t want to store physical metals
Purchase mining stocks	Benefiting from the metal industry as a whole
Invest in gold or silver futures	Those with high risk tolerance