Speculating on precious metals, while sometimes rewarding, can be very risky. Are you a speculative trader? While many choose to invest in precious metals as part of a long-term strategy or as a secure form of wealth preservation, others trade precious metals to profit from price changes. This latter style of investing is known as speculating. If this describes you, keep these five do’s and don’ts in mind to protect you from making typical trading mistakes.
1. Do Work With Licensed, Well-Reputed Brokers
Quick-talking salespeople looking to earn a quick commission by selling overpriced assets lurk in the precious metals market. Because of this, avoid purchasing precious metals from pawn shops, unsolicited emails and calls, infomercials, social media posts, and the like. Bypass this hazard altogether by working with a trustworthy dealer that charges fair premiums and provides full authenticity guarantees.
Prices will not always move in your favor. While precious metals hold a real physical value beyond that of traditional stocks, speculating carries more risk than a long-term investing strategy. A good rule of thumb is to invest only as much as you are willing to lose.
3. Do Consider Investing in Bullion
Bullion, such as bars, ingots, or coins, is priced at the market rate plus a fair premium. Numismatic (rare or collectible) coins sell at a price far above the market value for the metal in the asset. Unless you are speculating on the demand for a specific numismatic coin, it is best to choose bullion. Numismatic coins can be challenging to sell and place a value on since their worth is objective.
4. Don’t Jump Into High-Interest, Highly-Leveraged Transactions
Often, these transactions fail to meet the Commodity Exchange Act requirements, and with high leverage comes an increased level of risk. This Daily Business Review article details a case that exemplifies the danger of these kinds of investments. Use caution when entering any high-interest or highly-leveraged transaction.
Educating yourself lays the foundation for every investment strategy. Always compare costs, study market rates, evaluate premiums, and understand the distinctions in how various types of precious metals behave. Subtle differences have the potential to make or break your investment plan.
Speculating on precious metals comes with unique opportunities and risks. Remember the above do’s and don’ts to keep you from common pitfalls and help you build solid investing habits.
