7 Precious Metals Investing Myths

In the volatile economy of the 21st century, investors often consider the precious metals sector as an alternative to traditional Wall Street securities like stocks and bonds. Unfortunately, the metals market is littered with myths, half-truths and flat-out urban legends that too many people take for fact. Here are some of the most common myths potential investors will encounter:

Myth #1 – Small investors can’t get into the metals markets.

Unlike some securities markets, gold and silver are particularly suited to small investors. Yes, there are markups on fractional-size bullion bars, rounds and coins, but anyone willing to buy an ounce or more of silver or gold will pay just a small markup over spot prices.

In fact, the World’s #1 online gold investment service BullionVault allow you to deal in any size and have 55,000 customers who’ve invested from $100 through to $100,000+.

Myth #2 – Governments and banks control the price of precious metals, thus no one can make a profit.

There have been some cases of banks trying (note that word) to manipulate global, spot metals prices for very short periods of time, but those actions have almost nothing to do with the profit or loss that a small investor gets. The truth is, bullion markets are primarily determined by demand and supply, so when lots of buyers want gold, for example, its price will go up. Both large and small investors have made profits and suffered losses in the precious metals markets.

Myth #3 – It’s better to buy mining stocks because they deliver bigger profits.

Under certain, rare conditions, gold and silver mining stocks do much better than the metals themselves, but most of the time investors are better off with gold or silver bullion than mining stocks. In down markets especially, mining stocks tend to drop much faster and farther than physical metals.

Myth #4 – Storage is a major problem for owners of physical precious metals.

Storage is a trifle, whether one speaks of a traditional safe deposit box or a home safe, though the latter is not recommended by experts. (Today’s high-tech burglars use metal detectors to quickly locate in-house stashes of investment-grade metals, which is why it’s usually smarter to employ some type of secure, safe-box method for storing metals). In any case, unless one takes a massive position in either gold or silver, space rental is a small price to pay for peace of mind.

The other option is of course to not take delivery of the precious metals in the first place. There are many cost-effective storage options out there, for example BullionVault will allow you to store bars in professional-market vaults at various locations around the world. Furthermore they charge just 0.12% on per annum on gold stored which is less than the management fee charged by many ETFs for example.

Myth #5 – It’s most profitable to purchase “investment-grade” rare coins that are made of gold or silver, rather than raw bullion.

Nothing could be further from the truth than this persistent myth, which is older than many of the coins in question. Unless one is an expert numismatist and already comfortable buying and selling rare coins, bullion is the way to go. Rare coins carry enormous markups that make them more like buying pieces of fine art than precious metals. Yes, coin dealers will repeat this myth like clockwork when asked. But consider the source! Stick with good old, boring metal bullion rounds, bars or government-issued pieces.

Myth #6 – Gold and silver, as well as platinum and palladium, are only useful as “contrarian” hedges within a larger portfolio of stocks, bonds and other investments.

The word “only” makes the above statement a pernicious myth. Yes, metals can be a good part of any properly diversified portfolio, but many investors put the bulk of their money into precious metals. Long-term metals’ investors, also known as “stackers,” routinely purchase gold and silver on a monthly, weekly or yearly basis, acquiring whatever amount their budget will buy at the given price. So, while using metals as a standard 10 percent hedge in a larger portfolio is a laudable practice, there’s nothing wrong with making precious metals the primary component of a well-managed investment strategy.

Myth #7 – The government could confiscate metals at any time.

This one goes into the “tin-foil hat” category of financial myths. Even when President Franklin Roosevelt oversaw a banning of private gold ownership in the 1930s, the U.S. government did not raid safe-deposit boxes. Most of the gold was turned in voluntarily. The big change was the fact that brokers and dealers were no longer allowed to sell to private citizens. Plus, the dollar was backed by gold in those days, thus the government had a vested interest in how much gold was in private hands. Today’s investors might as well fear government currency devaluation as a much bigger, and more realistic, threat than gold seizure.

Every investment carries its own unique set of risks and rewards. That’s to be expected. But in the world of so-called “alternative markets” like precious metals, there’s often a veneer of mystery that needs to be cut away before consumers can purchase with confidence. It pays huge dividends to spend a bit more time studying alternative investment opportunities before putting hard-earned dollars on the table.

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.