Money is universally recognised as the way that capitalist societies trade products and services, but there is nothing intrinsically valuable about currency itself. A coin is only worth the good or service it is being exchanged for, though theoretically, it is being exchanged for some sum of gold which is locked up in a bank somewhere. Precious metals – gold, silver, platinum, etc. – have been recognised the world over as being valuable, so if you’re a keen investor looking for a new opportunity, investing in precious metals might just be the route to go down. Here’s a beginner’s guide to precious metal investing if you’re unsure of how it works.
Precious Metals as Commodity
Precious metals, from gold to platinum, are examples of commodities. Therefore, before we explore the nature of precious metals and how you can invest and trade with them, we’ll spend some initial time discussing commodity markets and their manifold advantages.
Commodities are everyday products that we encounter in everyday life. From corn and grain to oil and gold, commodities are products which every investor should be looking at when trying to produce a balanced, rich and diverse portfolio. Commodities can be spot traded, though ultimately many investors trade commodities using future exchange. These are contracts which specify the total amount of a commodity which is to be traded on a specified time and date, provided by the participants of the trade.
When a commodity is traded in a future contract, the participants of the trade are not actually exchanging the good or financial service itself; instead, they are producing contracts for the buying and selling of the commodity for a particular price. In other words, if gold is the commodity in question, the buyer opens a position when its value is low and then sells when the value is high – the gold is not exchanged, but the contracts are.
Where Does Gold Get Its Value?
Obviously, gold has some physical properties which make it valuable, such as its rust resistance and anti-corrosive properties, but it is also valuable because it is extremely limited. What this means is that the price of gold is dictated, largely, by the will of its present owners and their decision to sell or retain.
For example, if a person owns a sum of gold, they might decide that they are going to keep it for a further year, so the price will creep up the longer the commodity is retained. When the owner decides to sell, the value will decrease naturally as a result of availability. In essence, then, the price of gold is derived by how long its owners decide to hoard it. This could be effected by a number of factors, such as wars and general political, social and cultural dissatisfaction, and unsettle in the banking system, a precious metals are seen as impervious to instability.
Investing in a Stable Opportunity
As we’ve seen, precious metals such as gold are generally perceived as a safe bet amongst investors, so if you’re looking for a method of portfolio diversification that doesn’t carry all of the risk of other stocks and shares investing in precious metals might be your best bet. Of course, there’s still a lot to be learnt, so if you’re feeling unsure about your ability to invest and trade precious metals, you shouldn’t only take our word for it. There are plenty of experts out there qualified to tell you more about investing in precious metals, so consulting them might help. Good luck.