How to Start a Precious Metal Portfolio


It’s common knowledge to a lot of investors that gold and silver are an essential part of developing a precious metal portfolio. People invest in gold because it holds its value over the long term compared to fiat currency. Gold will never lose all of its value. The same thing cannot be said about some stocks. Gold and silver can act as a hedge when the market is in a high flux of volatility.

Although most of the spotlight is on gold and silver, there are other options and groups of metal that can be added to a precious metal portfolio. This includes lesser-known metals like platinum and palladium. All of these metals behave differently, although gold and silver are used interchangeably they differ in price fluctuations and uses for each respective metal.

Metal Portfolio Allocation

Gold is usually used in jewelry and silver is a staple metal used in industrial production. Platinum is a more diverse metal as it can be used in jewelry and other high-tech components and machines. Before starting a metal portfolio it’s best to lay the foundation in gold and silver. These markets are larger and more established. Platinum and palladium are not for the faint of heart. The markets are smaller and more volatile.

These two rare metals have been soaring in value the past couple years. They first began being refined in the 1800s. Metals should be held for at least a minimum of three years. Platinum and palladium should be half the amount of a gold and silver stake for stability’s sake.

During times of political stability and regular periods of the market, platinum is at a higher price than gold. Platinum is 10 times as rare as gold. In March of 2008 platinum was trending at over $2,200 per ounce. In 2015 platinum has been trading at around $830 an ounce. Platinum is an industrial metal and the largest demand for it comes from automobile catalysts. The demand for platinum is followed by the computing industry.

Most of platinum is mined in Russia and South Africa. This could be a cause for higher prices. These are all factors to take into account when adding platinum into a portfolio.

Palladium is a more uncertain metal. It’s growing in popularity and is driven by industrial demand as well. Palladium is essential for building catalytic converters in cars. In December of 2000 palladium was trending at $1000 an ounce, currently its at around high $400’s and low $500s.

The prices listed above are indicative of the possibilities for profiting on an intelligent precious metal portfolio.

Market swings should not be the main driving force behind a precious metal investing strategy. It’s all about setting a target price that an investor feels comfortable with before selling.  There are a few different ways to buy precious metals and they both have their own pros and cons.

Method of Ownership

Owning the actual physical metal used to be one of the only options for anyone who wanted to own precious metals. This can be costly due to expenses associated with transportation and storage. Also the markup for dealers could cut into profits as well.

Actually having the commodity in a physical form adds up additional costs and other risks that come with having something in possession.

One of the other options for owning precious metals is through commodity ETFs. By purchasing an exchange-traded fund, investors have a convenient way to both purchase and sell precious metals. Trading ETFs is a passive way of holding these assets allowing investors to follow the pricing in the market without needing the actual asset in their possession.

Commodities ETFs

SPDR Gold Shares (GLD) is an ETF that is an option for investors looking to invest in precious metals. 2016 is looking like a promising year for Gold. If this ETF can push forward past its $100 range then it will be a good investment option for anyone wanting to invest in Gold.

iShares Silver Trust (SLV)  is one of the leading ETFs for investing in silver. Silver’s demand hinges partly on China’s demand. SLV is trending in the mid teens at around $13 – 15.  This ETF is one of the most relevant and sturdy ventures for investing in Silver.

As gold and silver are tied closer with monetary policy, the other two metals, platinum and palladium are closely related to automobile sales. Vehicle sales are predicted to rise in the upcoming months and years. As stated earlier a lot of components in these cars rely on the two precious metals. This very reason is why it is imperative to add other precious metals along with gold and silver. They can outperform gold and silver during different market situations.

ETFS Physical Palladium (PALL)  is an ETF that focuses primarily on palladium and is an excellent entry point into investing into palladium, which can be an obscure metal to purchase in traditional ways.

ETFS Physical Platinum (PPLT) is a unique ETF for platinum as it is the only fund that holds the actual metal in the form of bullion and ingots. The platinum is stored in London and Zurich based vaults. They are overseen by JPMorgan Chase Bank and have roughly $850 million in assets under their control.

Common Stocks

Common stocks in mining companies can help track price movements related to the precious metal market. It’s good to look at the intrinsic value behind some of these stocks and their future plans. For example look to what country these companies are based in and the laws affecting them. As well as their expansion plans and management behind them.

Investing in the actual companies can be a speculative endeavor because the investor is reliant on how the company is performing as a whole regardless of the underlying commodities market conditions.

Bullion & Coins

Historically, coins and bars were primarily for people who could afford to invest large amounts and pay for secure storage.

However bullion dealers like BullionVault allow investors to purchase gold, silver and other precious metals online at low prices. Bars can then be stored in professional-market vaults in Zurich, London, New York, Toronto or Singapore. Because of their size (BullionVault manage over $2bn worth of gold for 55,000 clients worldwide), you benefit from low storage costs which always include insurance.

We recommend BullionVault because it is the world’s largest online investment gold service that is part-owned by the World Gold Council.

If you are specifically interested in coins then you may wish to consider the U.S. Mint or The Royal Mint. Both offer a range of gold, silver and collectable coins that can appreciate in value. The U.S Mint also issues American eagle platinum coins.

Overall, there are a few different ways to buy precious metals and begin a portfolio. In this new market it’s a good idea to have gold and silver as a baseline and foundation for a portfolio with the addition of platinum and palladium. In recent years they’ve gained traction on the market and this is shown through the new ETFs being traded to accommodate their growth.  Investing in precious metals is a great way to stay safe against inflation and be used as a hedge during unstable market conditions.

Mike Colagrossi is an analyst at covering activist investors and major deals at hedge funds. He also regularly contributes to and has a strong interest in alternative investments and emerging markets.