Trading precious metals has been around since man first discovered them, virtually all money used to be backed by them, and they’re sold at nearly every market on earth.
There’s a reason for that…you can make a PILE of money buying and selling them!
An investment in metals will require a little capital to get started, and as with all things, the more you have to invest the more money you will make.
I’m going to explain how to get started in this lucrative trade, some of the different ways to do it and also explain some of the market factors which affect the prices of silver and gold.
If you don’t have a lot of money don’t worry, it’s possible to trade silver and even a little gold with a smaller sum. As a matter of fact as of the time of writing (November 2014), this would be the absolute best time to buy as much silver as possible as it’s at five-year lows.
Why trade precious metals?
There are several good reasons to trade precious metals, the first of which is ease of access.
Most decent sized cities will have a pawn shop, a jewellers or some form of direct metal buying and selling facility, such as a mint, which will enable you to trade metals. There are also countless websites which can deliver to your door. This ease of access is a big factor when considering why you should get into the game.
The second reason is liquidity. For you financial rocket scientists reading that means the ability to liquidate your investment back into hard cash. There’s virtually a never-ending market for metals and someone will always be in the market for it.
The third reason I like this game is that the investment can drop, but unlike stocks it can virtually never go to zero.
Even if you bought silver at $20 an ounce and it fell to $5 (highly unlikely given its industrial and commercial uses), you could just sit on it until the price goes back up again.
It’s a versatile investment with very little risk. That’s a good enough reason to be in it for me.
How to get started:
Again, there are multiple ways to do this.
Option one is to go down to your local mint or sliver/gold seller and buy physical coins or bullion.
If you do this you’ll need to find a safe, suitable place to store the metals where they can’t be stolen or degraded by the environment.
When the time comes to sell it you’ll also have to time your sale correctly as the buyer will always offer you a little under the market price. That’s just how it works and is the same all over the world, even online. Make sure you’re making a decent profit after you factor this into account.
Option two is to buy silver certificates from a brokerage. They’ll hold the physical metal in a vault and charge you a small storage fee. Your certificate proves you own X amount and can claim it at any time.
I wouldn’t exercise this option unless you’re buying a large amount and/or are worried about security because those small fees will all add up and eat into your profits, especially if you have to hold for a long time. I prefer to maximize profits and avoid fees where I can in any investment.
Option three is to trade an ETF, meaning Exchange Traded Fund, backed by silver. This is where a company holds a massive amount of silver or gold and will sell you an ounce in the same way a company sells you a share.
How it works is that one share of an ETF will be valued at the current market price of an ounce of whatever metal you’re buying.
For gold backed ETF’s, a share will be the price of an ounce divided by a factor of ten (eg at $1500/oz a share in an ETF will cost you $150).
When deciding to trade with ETFs you need to properly educate yourself about how they work and make sure you understand the fees and charges each one will take. If you get a reasonably priced one this can be an excellent way to quickly access the markets.
You’ll have to decide for yourself how you want to do this. There are pros and cons to each and it really also depends on how much you have to invest and what metal you want to buy. For example, you could keep $100k worth of gold in your house without much trouble, but $100k worth of silver will take up a considerable amount of space so it might be better in that case to buy certificates or into an ETF.
So now you know about some of the ways to get in the game, let’s take a look at some of the reasons the price moves up and down so we can better determine when to buy and sell.
The major factors that causes metal market movements:
There are several things which affect the price of precious metals. I’m not going to outline them for every metal, but I will cover the basics for the most popular two – silver and gold.
Gold is generally thought of as a safe haven in times of crisis and a hedge against inflation.
It’s not used in too much industry and almost all of it is recycled and recovered.
Because of its value as a safe haven one of the single biggest factors which cause the price of gold to go up or down is the mood of the investors in the market.
In times of fear and crisis gold will shoot through the roof as everyone cashes out of stocks and bonds and buys gold bullion to secure their wealth.
Likewise, in times of prosperity when the market is booming and everyone is buying stocks (like right now) the price of gold falls as investors sell the metal to obtain cash to buy stocks.
At the height of the financial meltdown which started in 2008, gold topped a whopping $3000 per ounce. At the time of writing, with everyone in a cheery mood and believing the economy is in recovery it’s sitting at a little over $1000.
I’ll be buying soon. Just not yet as I believe it will fall yet further as market mania takes over before the inevitable crash.
For me the inevitable crash is one of the absolute greatest reasons to buy gold when prices are low: you’re going to be selling and making a huge profit when times are toughest in the economy. That’s obviously a huge advantage and will see you through some of the hard times you yourself may undergo the next time the economy turns upside down (and you bet it will).
Silver on the other hand is an industrial metal. It’s used in nearly every appliance, computer and many other everyday items. It’s price is therefore affected by how many goods are being manufactured in the economy and in this day and age the price is particularly affected by economic data coming out of China.
Right now silver is at 5 year lows, trading at just over $15 per ounce. It’s a great time to buy and I am gobbling up as much as I can afford. I know it will rise again to $20-25 an ounce or even higher. Even if it takes a couple of years it will make me a tidy little profit.
What if it falls yet further? I’ll just buy even more and make even more money in the long run!
The worlds greatest investor Warren Buffet not long ago bought a third of the worlds silver supply. If that’s not an indication to buy I don’t know what is.
As always, supply and demand rules the roost when it comes to trading commodities like metals. We’ve already outlined that here, but it’s a good idea to keep an eye on any new mines coming into production too as large enough ones can have some impact on price by causing oversupply.
Trading metals is easy, passive cash. It’s not exactly passive income as it doesn’t generate a steady supply of monthly money, but it does yield a nice fat cash bonus once your investment comes good.
So whether you decide to trade gold or silver you stand to make great money. It’s one of the easiest, safest and if you time it correctly, most profitable investments you can make.
Who doesn’t need something like that in their financial lives?
As a last piece of advice before signing off I’ll say this. Only use money you don’t think you’ll need for a while if the buy low – sell high strategy discussed in this article is the one you want to use.
Things can take a little while to go the way you want. Patience and long-term thinking are key in this game. If you have those and can hold until the time is right, you’re guaranteed to make money trading precious metals.
Desire. Decide. Persist.