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There's More than One Way to Buy Precious Metals

Precious metals choices feature funds, collectibles and bullion to give investors a variety of ways to ride the upward price trends of the shiny assets, explains Paul Dykewicz, editor of StockInvestor.com.

Gold and silver prices have jumped in the past year, and further gains appear ahead, said Rich Checkan, president and chief operating officer of Rockville, Maryland-based Asset Strategies International. The challenge for investors is to buy precious metals assets that are best for their specific goals.

Exchange-traded funds are easy to buy and sell for investors who value liquidity. However, only certain funds allow investors to take direct distribution of precious metals such as gold or silver, which have outperformed equities handily in the past year.

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A drawback of precious metals funds are that many investors do not understand the mechanics of how they operate, Checkan said. ETFs only track the precious metals prices well if the fund manager is successful in predicting short-term market movements, he added. 

Fund managers constantly need to choose between going long or short in the market to match investor demands with the buying constraints of physical precious metals, Checkan said.

Another asset class for investors to consider is precious metals collectibles. He notes, “There is value out there for investors looking to build a rare coin portfolio, but the horizon is longer to see appreciation, and the cost is higher, in terms of premium, than bullion bars and coins.”

A third kind of precious metals asset class is bullion, which can take the form of bars or non-rare coins. Plus, the premiums charged by sellers of bullion have been slashed during the past five years, Checkan said.

The best way to participate in bullion right now, whether investors are buying gold for “wealth insurance” or silver for its “profit potential,” is through the Perth Mint Depository Distributor Online (PMDDO) program, Checkan said. 

The minimum order is just $50 for gold, silver and platinum products, with just a 1 percent commission owed by investors that would be shared between the Perth Mint and Asset Strategies, Checkan said.

The Perth Mint Depository program is the best kept secret in gold, silver and platinum that often is unknown to investors, Checkan said.

Bullion traded via funds like Sprott Physical Gold & Silver (CEF) have held up better, but they look vulnerable to at least 5-15 percent downside before offering a firm entry point, said Hilary Kramer, editor of Value Authority.

Kramer added that her cautious view of silver and gold right now doesn't mean she is bearish on either or the companies that mine those precious metals. “It is simply an acknowledgement of how far they've come since the gold bugs started their run in May,” Kramer said.

“Any resolution to the trade war will probably constrain Beijing's ability to keep the yuan artificially weak,” Kramer said. “A stronger Chinese currency means a weaker dollar, and again that's good for gold.”

This is different from the argument that precious metals are the ultimate reservoir of value in dangerous times, Kramer said. Inflation often afflicts perfectly healthy economies that have a strong outlook, but exposure to gold and silver helps prevent the value of money from eroding, she added.

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“In that scenario, I actually prefer mining stocks because once the metal has been dug out of the ground, it's essentially dead and will rarely do more than match inflation in the long term, Kramer said. “VanEck Vectors Gold Miners ETF (GDX) is the best place to start."

Bob Carlson, who heads the Retirement Watch advisory service, said retirees need more than income in their portfolios. “They always need a growth component to protect their purchasing power from inflation over time,” Carlson told me.

“These days they also need a hedge against geopolitical conflicts and uncertainty, including the trade conflicts between the U.S. and China, the Brexit situation in Europe and more. A position in gold meets these needs.”

The best way for most retirees to own gold is through an ETF that buys the metal, Carlson said. ETFs have low fees and are easy to buy and sell, he added.

“I recommend iShares Gold Trust (IAU) because it usually has the lowest costs,” Carlson said. “Also, IAU isn’t widely owned by short-term traders such as hedge funds, so its share price isn’t likely to drift far from net asset value during periods of market volatility.”

Gold and silver offer safe-haven investments in times of crisis that have been reflected by rising prices of each precious metal in the past year. The reasons for the climb — including negative interest rates in Europe, soaring government debt, trade wars, economic weakening and global conflicts — seem unlikely to end anytime soon.

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