When most people think about investing, they tend to consider some of the more traditional options that are available. Most people are familiar with concepts like stocks, bonds, mutual funds, and money market funds. If you want to take things to the next level, you might consider a field like real estate. But one area that people tend to overlook has also grown increasingly popular over the last few years in particular: precious metals.
When people talk about investing in precious metals, they’re talking about ones like gold, silver, platinum, and even palladium. The number one benefit of this is that you’re talking about resources that are A) physical, B) finite, and C) versatile. They’re used in a wide range of different ways all over the world, meaning that the chances are slim that demand will suddenly drop to “zero” overnight.
Many people even see precious metals as a way to combat the never-ending impact of inflation. Even when the value of certain currencies are on the decline or the stock market experiences a difficult period, precious metals still tend to rise in value. To be clear, absolutely nobody is saying that you should suddenly take all your investment funds and funnel them into precious metals. But because of this widespread demand, hedge against inflation, and other clear advantages, they’re a great opportunity to diversify your larger portfolio.
According to one recent study, the global precious metals market size hit $261.94 billion in 2020. By as soon as 2028, that number is expected to grow to an enormous $403.08 billion – representing a compound annual growth rate of 5.6%. If you needed a single statistic to illustrate not only why so many people have chosen to buy and sell precious metals as an investment vehicle, let it be that one.
But as is true with other types of investment vehicles, precious metals are not without their nuance – particularly when it comes to precious metal prices. To truly take advantage of this and enjoy all the benefits with as few of the potential downsides as possible, you need to make an effort to fully understand precious metals in this context as much as you can. With that in mind, there are a number of common misconceptions that people tend to have about precious metals and e-commerce that you should be aware of moving forward.
Misconception #1: Precious Metals Do Not Behave Differently Than Stocks
One of the biggest misconceptions about precious metals – and about the concept of investing in general – is that all vehicles operate in largely the same way. Despite the inherent complexities to certain types of investments, they’re all supposed to operate in largely the same way. You purchase a piece of real estate for one price, it increases in value, and you sell it for a profit. You purchase a stock for another price, it increases in value, and you sell it for a profit. You purchase precious metals at one price, they increase in value, and you sell them for a profit.
But the chasm between how something is supposed to work and how it actually behaves is a deep one, indeed.
For starters, precious metals don’t generate income through concepts like dividends or interest, while stocks do. Dividends are a type of payment that a company makes to its shareholders, essentially to reward them for their investment. Sometimes, this gets paid out as additional shares of stock. In many situations, it gets paid out in cash. Regardless, it’s a bit of additional value on top of whatever the stock itself is worth, which is a characteristic that precious metals like silver or gold don’t share.
In order to generate a return, investors are solely at the mercy of precious metal prices when it comes time to sell. So long as that investment has appreciated, you’ve made money.
Another way in which precious metals behave differently from stocks has to do with storage costs associated with the former. When someone purchases stock in a company, they’re issued what is called a share certificate. This is essentially a receipt for the investment, acting as proof of ownership. It’s a document that contains important information like the company name, registration number, the number of shares owned, the date of shares issued, and more.
Even if you don’t have or lose your share certificate, you’re still the owner of those shares. You still have all the rights that come with them thanks to the fast-paced digital world that we’re now living in.
The same is not true if you invest in precious metals like gold. They’re a physical investment, which means they require physical (and secure) storage space. That will absolutely cost money. If you’re storing those precious metals in your possession, you’ll probably want to invest in physical security systems like cameras or alarms. Even if you’re not, you’ll still have to pay to insure those precious metals in the event that they are stolen. Remember that if you don’t actually have the gold you’ve invested in, you don’t have anything at all.
All these storage and insurance factors add to the overall investment cost of precious metals. Is this a hurdle too difficult to overcome for many people? Not at all – but it is something you have to consider that you don’t if most of your activity is focused on the stock market.
Misconception #2: Precious Metals Are Not Impacted by Technology
Particularly in terms of e-commerce, it seems that a lot of people buy into the idea that precious metals are a “low tech” or “low-fi” form of investment – almost to the point where things like gold and silver are seen as antiquated.
They have a difficult time understanding why you would want to invest in gold bullion when we’re living in a digital world. If the future is undoubtedly going to be driven by technological innovations like artificial intelligence, why put so much time and effort into something physical at all?
To that end, people don’t realize just how tech-driven the worldwide market for precious metals truly is. In 2020, for example, about 8% of all worldwide demand for gold came from the technology sector. This is because gold is an integral part of most of the consumer electronic devices that we take for granted on a daily basis. This includes not only the circuit boards that power our computers, but also various chips, connectors, and more.
There’s about 0.034 grams of gold in your average iPhone, for example. That may not seem like a lot, but when you consider that literally hundreds of millions of iPhones are sold on an annual basis, that’s a great deal of gold that an entire tech-based industry has come to depend on.
That’s just one example. Palladium is regularly used in the catalytic converter found in cars. Until a lower cost alternative is developed, a significant part of palladium’s global demand will always be tied directly to the technology at the heart of the vehicles around us.
E-commerce itself is an industry that thrives on computers. People browse their favorite online retail sites on smartphones, tablets, and computers. Orders are fulfilled in warehouses that are filled with examples of robotic process automation. Online sales for consumer electronics rose to an enormous $53.9 billion in 2022, meaning that a significant portion of all e-commerce sales goes to these devices.
All those things would be impossible without precious metals, making them one of the most e-commerce friendly and technology-driven forms of investment there is, from a certain perspective. The next time someone insists that investing in silver is “old-fashioned” in a world surrounded by IT and digital innovation, think about it like that.
Misconception #3: Precious Metals Are a "Risk-Free" Investment
It’s absolutely true that one of the major benefits that comes with investing in precious metals has to do with their security. When you consider the fact that gold in particular has always been in demand throughout the entirety of human history, it’s a safe bet that it won’t suddenly become obsolete in the near future.
Having said that, absolutely any investment carries with it some degree of risk and precious metals are no exception. Consider the laundry list of factors that can impact the price of gold, for example:
- The value of the United States dollar. Gold tends to have an inverse relationship with the value of U.S. currency. If the value of the dollar decreases, the value of gold goes up. If the value of the dollar goes up, the value of gold goes down.
- The laws of supply and demand. Don’t forget that gold is a finite resource, while demand is essentially never-ending. As gold becomes more difficult to prospect and mine, it also becomes more expensive to do so. This causes the price of gold to rise.
- Interest rates. Much like the value of the dollar, gold prices tend to rise as interest rates fall and vice versa.
- Geopolitical conflicts. This was most recently evidenced by the recent conflict between Russia and Ukraine. When that began, the price of gold (as well as other commodities) increased significantly.
The recurring theme here is that many of the factors that impact precious metals prices are beyond the control of the investor. Yes, whenever the value of your silver or gold increases, it’s typically seen as a positive thing. But you can’t control what is going on in the world any more than you can the weather. If the unpredictability of the geopolitical arena can impact you in a positive way, it stands to reason that it can eventually do so in a negative way, too.
That’s a concept you need to get comfortable with before you start to look at buying and selling precious metals as a “sure-fire investment win.”
Misconception #4: Investing in Precious Metals Has Absolutely No Disadvantages
Even if you set aside the concept of risk, some people still assume that investing in precious metals has far more “pros” than it does “cons,” if it even has any disadvantages at all.
For the purposes of this discussion, know that the concepts of “risk” and a “disadvantage” are being treated as two separate things. Risk poses a legitimate threat to your ability to accomplish your long-term investment goals. A disadvantage is an inconvenience that you wouldn’t have to deal with through other means, but it isn’t necessarily harmful.
Maybe the biggest example of this is the opportunity costs that come with investing in precious metals. Many people enjoy precious metals because they’re safe and are relatively stable. But if you’re looking at the investment landscape purely in terms of ROI, precious metals are hardly the fastest way to accomplish your goals.
According to one recent study, equities alone have outperformed gold by as much as 16 times since 1974. This isn’t necessarily a bad thing. Depending on your investment style, this could be a way to accomplish your goals while generating a peace-of-mind that you won’t get through other means. But you just need to know that you’re trading the opportunity to invest in potentially higher-yield assets with an almost unparalleled sense of security.
Is one of those two things inherently better than the other? Not necessarily, but that’s something you need to decide for yourself.
Additional Considerations About Buying and Selling Precious Metals
Many people who are new to precious metals make the mistake of assuming that the only way to invest is to do so by way of physical assets. They think that if you want to invest in gold, for example, you need to go out and purchase as many gold bars as possible. In reality, precious metals are much more versatile of an investment vehicle than people realize in more ways than one.
Coins and bullion are certainly one way of investing in things like gold and silver. You can get coins, bars, rounds, and ingots depending on the online dealer or local currency exchange that you’re working with. The value will vary depending on the age of the bullion, the weights, and other factors. Therefore, if two silver coins look identical to the naked eye but are two totally different prices, the chances are they are more dissimilar than you realize.
However, you can also invest in mining company stocks and mutual funds if you prefer. That way, you don’t have to worry so much about where you’re going to store the physical asset. Doing so isn’t dissimilar from buying stocks in companies in other industries or sectors.
Other options include ones like:
- Exchange-traded funds, otherwise known as ETFs for short. Here, you and other investors essentially combine your money by way of a fund that can include holdings of physical metals, shares in mining companies, or both.
- Futures. As is true with other types of futures, you’re agreeing to purchase precious metals at a specific price at a later date. It’s a bit riskier than straightforward precious metals investment, but it can also be far more lucrative as well.
This also helps to shatter another one of the most common misconceptions about precious metals and e-commerce: that precious metals are difficult to buy. Especially in the context of e-commerce, that couldn’t be further from the truth. There are plenty of sources online that make it easy for even new investors to purchase bars or bullion, invest in finding stocks, or trade futures. So long as you’ve chosen a reputable partner, buying and selling precious metals isn’t any more difficult than investing in any other type of commodity.
In the end, one of the most important things to understand about precious metals also applies to any form of investing. You need to make as many decisions as you can based not on gut instinct or intuition, but on cold, hard fact.
Precious metals like gold and silver are not a guaranteed “win” for your portfolio because you can’t invest in anything without accepting some form of risk. Changes in supply and demand can easily impact precious metals prices, as can unexpected geopolitical conflicts, and additional factors that are fully beyond your control.
For some, that risk is outweighed by the diversification benefits alone. If you’re looking for a relatively straightforward way to reduce the volatility of your large investment portfolio, precious metals are a great opportunity to do it.
It’s equally important to note that every investor is different from the next – meaning there is no “one size fits all” approach to what you’re doing. If there were some perfect ratio of precious metals to stocks to bonds to mutual funds in a portfolio, everyone would capitalize on it.
Don’t start with the investment vehicle and hope that it automatically turns into a fruitful experience. Begin by making a list of the real, tangible goals you want to accomplish through investing. Think about how risk-adverse you truly are. Then, work your way backwards to the investments that make sense given the objectives you’ve laid out in front of you. Once you have this information, the role of precious metals in your portfolio will become clear.
If you’d like to find out more information about the most common misconceptions that people tend to have about precious metals and e-commerce, or if you have any additional questions that you’d like to go over with someone in a bit more detail, please don’t delay – contact us at your convenience. You can also click here to get a quote or start your free trial today.
