Precious metals: investing for beginners

Gold and silver have long been sought-after – from jewellery and coins to bullion and now even exchange traded funds (ETFs).

But, where do you start, and which types of precious metals are investors typically attracted to?

We’ve put together an uncomplicated overview of investment in precious metals with our four key takeaways. This information is intended as general information only, and you should speak to a financial adviser or other professional before deciding to invest in precious metals.

1. Why do people invest in precious metals?

Precious metals are best known as a store of wealth and have been for generations. They can offer a strong long-term return, hedge against inflation and falling equities, are highly liquid, and can be used as a cash alternative when rates are low, also providing currency hedge and bringing no credit risk to the table. Precious metals are also considered by many investors as alternatives to traditional investments like equities and bonds when in pursuit of diversification and higher risk adjusted returns. According to the World Gold Council, adding 4-15% in gold could help increase risk adjusted returns across global average hypothetical portfolios*. That said, there is always risk with any type of investing.

2. What’s the difference between gold, silver and platinum for investment purposes?

As with stocks and shares, each metal choice depends on investors’ personal circumstances, budget considerations and the length of time investors want to keep their investments. Whilst there are benefits and risks in each, investors can use precious metals to complement other asset classes and broad-based portfolios.

There are a few differences with each metal, as outlined below:

Gold

Gold tends to hold its value during economic downturns and its value is influenced by a 24/7 market, the price less determined by global supply and demand. According to The Perth Mint’s SMSF Whitepaper, “For Australian investors, gold has historically been the highest performing single asset when equity markets have fallen.” Looking back on history, gold “has provided robust portfolio diversification because it is uncorrelated to equities”. Typically it performs best when equity markets are weakest.

Silver

Silver’s advantage is that it’s significantly cheaper to buy 1oz of silver compared to say 1oz of gold. This makes it more accessible if investors are starting out or have a smaller budget. In terms of its use, silver is predominantly used for industrial purposes, including medical equipment, solar, batteries and electrical appliances. Because of its uses, the price of silver tends to be in line with economic growth, but this also makes it more volatile. In conjunction with professional financial advice, looking at the gold to silver ratio can help investors make an informed decision as to which precious metal to invest in at any given time.

Platinum

Platinum, also traded around the clock like gold, has historically outpriced gold until recently. Like silver, it’s used widely for industrial uses as well as jewellery, but its price is influenced by geopolitical issues where it’s mined. Currently, the majority of the world’s mined platinum comes from South Africa, Russia, Zimbabwe, Canada, USA and Australia. The main advantage of platinum is that it generally has a negative correlation with other assets and has historically done well in times of economic recovery.

3. Precious metals commonly purchased by investors

Bullion bars and coins

Pure gold and silver coins, cast and minted bars come in varying sizes and purchase options to suit different budgets, though with this option investors need to ensure they have sufficient insurance and security if they plan on storing the bullion at home. Alternatively, investors can opt to buy, sell and store your high value precious metals in secure vaults if buying from a reputable mint.

Exchange-traded funds (ETFs)

Many investors manage their precious metal investments in a stockbroking account. For instance, The Perth Mint offers an exchange traded product (ETP) called PMGOLD (ASX code: PMGOLD) which allows trading in gold via a stock broking account, similar to shares on the ASX. This is a good option if investors would rather not store gold at their homes, however investors can choose to convert holdings into any of The Perth Mint’s bullion bars.

4. Where can investors purchase precious metal?

Whichever precious metal you consider, it’s important to buy from a reputable dealer – one who will give a competitive price for accurately assayed gold and silver. It’s also wise to know that precious metal prices vary throughout the day depending on global political, economic and other influences.

Why The Perth Mint?

To reflect the ever-changing price for precious metals, the prices displayed on The Perth Mint website update every five minutes when the global precious metals market is open.

Investors can buy, sell and store gold, silver and platinum with The Perth Mint Depository. There are also a variety of weights to suit all budgets. For example, gold can be purchased from 1 gram up to 1 kilo and silver can be bought from as little as 1/2 ounces through to 100 ounces. Here investors have an extensive network of secure facilities, including central bank grade vaults, to protect their precious metal holdings.

Whether buying for long-term investment, in preparation for uncertain times or as part of a diversified investment portfolio, The Perth Mint’s investment products combine the convenience of leading-edge investment solutions with an age-old trusted store of wealth. And that’s not all. All precious metals are government guaranteed as we’re owned by the Government of Western Australia and bound by a statutory guarantee.

The Perth Mint Depository, established in 1994 at The Perth Mint, is one of the world’s safest locations for precious metal storage. It holds more than AUD 6 billion worth of gold, silver and platinum for more than 70,000 global clients and investors.

Our metals are ethically sourced and manufactured at The Perth Mint Refinery and we offer a range of storage options. Download our How to invest in precious metals guide for more information.

*Gold’s strategic role | The relevance of gold as a strategic asset 2022 | World Gold Council