(Newswire.net — April 1, 2022) —
When traditional asset values fall, gold and silver tend to hold up well. However, this isn’t always the case. There are hazards associated with precious metals investing that are sometimes ignored by investors seeking exposure to gold and silver. Here, we’ll touch on a few of the most important risk variables to consider if you want to get started investing in precious metals.
Opportunity Cost
There are tradeoffs with gold, silver, and platinum-group metals. The first is the opportunity cost. Every dollar invested in precious metals might be placed in interest-paying or dividend-paying passive assets. That isn’t to say they aren’t great investments; it just means you should consider balancing your precious metals allocations with dividend-paying stocks to keep your portfolio balanced. There’s also a chance that you wouldn’t be buying pure gold but rather gold mixed with lead or another substance. This fear alone can be enough of a risk for some buyers.
Tax Risk
If you aren’t careful when choosing a precious metals seller, you might find yourself breaking IRS storage restrictions for trusted third parties. Because precious metals bullion and most precious metals exchange-traded funds (ETFs) are classified as “collectibles” by the IRS, they are subject to a 28% long-term capital gains tax.
Capital gains on precious metals investments can be deferred by putting them in a 401(k) or an individual retirement account (IRA). To be eligible for inclusion in a tax-advantaged retirement savings account, they must be kept and vaulted by trusted third-party custodians.
Liquidity Risk
Metals like gold and silver aren’t always accepted as legal money. Vaulted precious metals, unlike stocks, require time to extract, examine, and sell on the open market. Unlike typical paper assets, this procedure might take days or weeks.
Choose a precious metals provider that offers online storage accounts for fast liquidity to reduce liquidity risk. If you use an online storage account, your cash may usually be disbursed one to three days after the transaction is concluded
Volatility in Precious Metals
Precious metals are prone to volatility. In fact, gold (the most conservative metal) has had its worst quarterly loss since 1920 at 28%. Even during long-term bull markets, gold’s price has been prone to wild swings. Prior to one of these downturns, you could easily invest in gold. If this is the case, you may have to wait a long period for prices to rebound. Before investing, it is recommended that you examine long-term charts to assess price movements.
There are No Dividends or Income From Precious Metals
Precious metals do not pay a dividend and generate no revenue. As a result, anyone looking for income or dividends should stay away from precious metals. Forecasts are always just that — opinions. One thing we can be certain of is that the person giving the forecast has a 50% probability of being correct and a 50% chance of being incorrect.
It’s also important to remember that past performance of precious metals is not indicative of future performance. Something that has happened in the past does not guarantee that it will happen again in the future.
Hold Your Investment for the Least Amount of Time
There’s a chance you’ll have to sell your precious metals before the buy/sell spread (the difference between a dealer’s buy and sell prices) is covered. This means you’ll be able to sell for less than you spent. Furthermore, the market price may fall, lengthening the time it takes to break even. This is why, if you’re buying precious metals in the hopes of seeing them appreciate in value, it’s recommended that you store them for at least three to five years. Furthermore, keeping coins for a long time does not ensure that they will climb above their purchase price.
Gains on Your Precious Metals are Taxed as Capital Gains
If you don’t pay your capital gains taxes, you might face IRS fines or even criminal charges for tax fraud. For example, if you put a penny in a gumball machine and get a dime, you’ve made 9 cents in capital gains. This is also how precious metals function, and capital gains occur when you take out more money than you put in. So, if you sell precious metals (which are considered “collectibles” for tax purposes) for more or less than you purchased for them, be careful to contact your accountant about paying capital gains taxes. Be sure to check with your tax advisor, because collectibles might have a higher capital gains rate than standard investments.
Platinum
Platinum, like gold and silver, is traded on global commodities exchanges around the clock. Because it is significantly rarer, it frequently fetches a greater price per troy ounce than gold during normal periods of market and political stability. Annually, far less metal is actually extracted from the earth.
Other variables that influence the price of platinum include:
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Platinum, like silver, is regarded as an industrial metal. Automotive catalysts, which are used to minimize the harmfulness of pollutants, have the highest demand for platinum. Following that, the majority of demand is for jewelry. Catalysts for petroleum and chemical refining as well as the computer sector consume the remainder.
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Platinum prices are mostly affected by vehicle sales and production statistics due to the auto industry’s considerable reliance on metal. Legislation requiring automobiles to install more catalytic converters might increase demand. In 2009, however, American and Japanese automakers began to use recycled auto catalysts or palladium, platinum’s reliable (and typically less expensive) sister group metal.
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Only two nations have a large number of platinum mines: South Africa and Russia. This opens the door to cartel-like behavior that would artificially sustain or boost platinum prices.
All of these variables combine to make platinum the most volatile of the precious metals, according to investors.