FAQs About Investing in Precious Metals

3 Mins read

If you haven’t invested in precious metals before, you probably have a lot of questions. Even once you have a basic understanding of how things work, you’ll still be asking questions like how do I find a good price for a 10 oz silver bar, a 1 troy ounce gold bar, or a silver and black rhodium-plated coin?

Here are some of the most frequently asked questions about investing in precious metals.

FAQs About Investing in Precious Metals

What are the different types of investments?

Many people get started investing in metals because they like the idea of taking physical ownership of valuable assets. You can do that, such as buying and storing gold ingots or silver bars. However, you can also buy them and have companies store them for you. You can also buy certificates representing ownership, similar to the way you own a stock certificate or share, or you can buy futures contracts.

What are allocated vs. unallocated metals?

Allocated precious metals have a high degree of safety. Physical assets are segregated and provide clear ownership title even if they are stored by someone else. They belong to you.

When you’re buying unallocated metals, the metal remains the property of the bank or broker. You become a creditor of the bank or broker. Premiums may be slightly cheaper, but there’s also a higher risk. Lenders may hold more unallocated shares than actual assets. In case of bankruptcy or liquidation, they may not hold enough gold, silver, or platinum to back the total value to pay all of their creditors.

Are there ongoing costs for owning precious metals?

It depends on the type of investment you make and how assets are stored. If you take physical possession and store your assets in a safe deposit box, you’ll pay the maintenance fees for the safe deposit box plus any insurance you have on your metals.

If you have a third-party hold and store your metals, you will pay storage fees. Metal ETFs or funds will charge annual management fees for management costs.

How easy is it to sell precious metals if I need to sell them?

Most investors tend to buy precious metals as a long-term investment, especially if they are taking physical possession. Selling bullion, bars, or coins will take a little bit of time and you will have to deal with the transportation of the items to the buyer. ETFs and funds trade on stock exchanges and can be bought, sold, or traded like other stocks and bonds.

What are the tax implications of buying and selling precious metals?

In the US, the Internal Revenue Service (IRS) considers precious metals to be in the same classification as art, books, or collectible. Currently, investments in this category held for more than a year are taxed as capital gains at 28%. Assets bought and sold within a year will be considered ordinary income. Some metal funds can be taxed at lower rates depending on your tax situation.

Why do prices change rapidly at times?

If you’ve looked at prices for gold, silver, palladium, or platinum, you may notice that pricing can be volatile. They can change rapidly and often without warning. Over the long term, prices are fairly steady but short-term investing can be a high-risk venture. That’s why most people tend to invest for the long term.

The pricing of metals is primarily a function of supply, demand, and scarcity. Demand can change quickly, especially if there’s an economic downturn and people move investments from stocks or bonds to what they perceive as a safer investment.

There is risk in every investment, although some people have done very, very well by investing in precious metals and selling them at the right time.

Can I use gold or silver to save for retirement?

Many investors do exactly that. Some types of gold, silver, palladium, platinum can be added to your IRA. You’ll want to check with your IRA provider before investing, however, as not all types are acceptable. For example, only certain types of bullion meet investment standards for inclusion in an IRA and these standards can vary by provider.

What is the Gold Standard?

The gold standard refers to a monetary system where a country backs its paper currency with gold. Currency values fluctuate with the price of gold. Despite what some people think, US currency is no longer backed by gold and hasn’t been for more than 50 years. Currently, no country in the world uses the gold standard.

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