Why Trade or Invest in Physical Precious Metals?

From geopolitical unrest to trigger happy central bankers cranking up the printing presses (quantitative easing), it’s apparent why market participants turn towards the natural safe haven qualities of physical precious metals when the chips are down. While metals such as Gold and Silver are currently valued decidedly south of the heady highs in 2011, the global financial crisis has cemented in the minds of global traders and investors the need to take a hedge against the unforeseeable and unquantifiable.

While many analysts argue the lack of yield and intrinsic worth for precious metals such as gold, the same analyst may also agree it has its place in a balanced portfolio. With physical demand for the precious metal from China alone set to climb 25% by 2017, the investment prospect remains lucrative to say the least.

There are a number of mediums traders or investors could use, with the simplest form likely to be a trip down to your local coin or bullion dealer, while the more experienced may trade a derivative such as CFD’s, Futures or margin Forex. The clear advantage of the latter is cost given the trader has the ability to deal at extremely low dealing spreads and attractive leverage rates.

Still, the question remains; why trade or invest in the physical? The answer is extremely simple. It’s real! It’s not a piece of paper with a promise from a bank, private company or government, it’s something you can hold, admire, vault, hide and save for a rainy day. For the staunch believer (or ‘doom and gloomer’) of physical precious metals such as Gold and Silver, the idea of trading a derivate to gain an exposure to the notional value rather than being backed by a real tangible asset doesn’t quite meet their needs.

To take an objective view, trading the physical also has its downside. If you choose not to take on the security risk of self-storage, you have additional vaulting costs, while the inability to gain leverage may be the deal breaker for some traders. Given the larger purchase premium it’s also weighted towards the long term investor than the short-term trader.

Overall, despite some negativity it’s resoundingly clear that taking ownership of the physical has its merits, and certainty doesn’t require putting your life savings on the line. You are in control of your precious metal portfolio and only you can decide the level of financial commitment you can afford. And whatever that may be the bases are covered. For the smaller players, take a stroll down your local coin or bullion dealer or for the initiated look at metal exchange services which can provide a significant concession on execution fees with a low minimum financial commitment.