There’s a reason precious metals attract investments from governments and institutional investors. Inflation steadily reduces the purchasing power of cash. Metals like gold preserve their value over time. Historically, many nations even based their currencies on gold, reflecting its enduring significance.

Individual investors also often include precious metals in their portfolios. Each metal comes with its own unique traits and risks. This type of investment feels overwhelming without the right knowledge. If you’re considering adding metals to your portfolio, weigh a few key factors first.

Time Precious Metal Purchases

Gold prices have shown fluctuations over the past century, even during strong market trends. Instead of trying to predict the perfect moment to invest, consider purchasing precious metals when prices dip from recent peaks. These temporary pullbacks can provide favorable opportunities for investors.

One opportunity may arise between the last week of June and the first week of July. Historical data spanning 30 years indicates that this period has occasionally marked some of the lowest price points of the year, making it a potentially advantageous time to invest. The best time to buy top quality gold bars or coins is when prices are low and demand is not as high.

Watch Out When You Hear "Low Risk"

Be cautious of claims suggesting that investing in physical metals is completely "safe" or free of risk. Factors such as storage fees, price volatility, and reliance on investor loans to purchase metal bars, coins, or bullion can all pose significant risks. Always request a risk disclosure statement from the salesperson before making any payments.

Additionally, ask for their name, address, phone number, and the same details for their firm. If the salesperson refuses to provide this information, end the discussion and look for a more trustworthy seller.

Be Mindful of Leverage Risk

Investing in precious metals can involve the use of leverage. This carries both risk and cost. Leverage means borrowing money to fund the investment. Typically, you might pay a portion of the metal's price upfront in cash, while covering the remainder through a "margin" loan. This margin loan could account for as much as 80% of the purchase price.

Since it’s a loan, it accrues interest and comes with the potential for a margin call if the investment's value decreases. If a margin call occurs, you may need to provide additional funds to avoid your investment being sold off without prior warning or approval.

Obtain a Comprehensive Breakdown of Fees

Investing in physical precious metals can be difficult to profit from due to various costs, including account opening fees, commissions of 15% or more (covering any leveraged portion), management fees, storage fees, and ongoing interest on loans for leveraged purchases. Before investing, ensure you’re aware of all expenses and calculate the return needed just to break even.

Dealer Reputation

When navigating the precious metals market, selecting a reliable dealer is crucial. Choosing a trustworthy source can help you avoid less reputable options. Start by exploring the dealer’s history and track record. Their years of experience and reputation in the industry can offer valuable insight. Established dealers with a strong presence often bring extensive knowledge and credibility.

Endnote

When creating your investment portfolio, incorporating precious metals can be a smart approach for investors across all experience levels and financial backgrounds. If you're new to investing in precious metals, familiarize yourself with the main types available, the different investment methods, the advantages and risks they bring, and the factors that influence their price movements.