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Gold and silver, along with other precious metals like platinum and palladium, provide valuable security in times of financial turmoil. Despite price fluctuations, physical precious metals pose no credit risk and retain an intrinsically high economic value even when the stock market crashes.
What are the costs of precious metals investing, and what associated expenses are involved in a precious metals portfolio? Our Oxford Gold Group experts chime in.
Typical Cost of Precious Metal Investment
The first and most obvious price tag of investing in precious metals is the price of physical precious metals themselves. Each precious metal comes with its own unique risks and benefits, which you should keep in mind when making investment decisions.
Gold has always been an extremely popular, safe investment to make as a hedge against economic collapse and crashing stock markets. Physical gold ownership can provide investors with a solid, valuable commodity when fiat money supply loses value and global markets crumble.
You can purchase gold bullion as bars, coins, or rounds. When buying physical gold, look for the .9999 or 999.9 purity stamp, which shows your coins or bars contain a minimum of 99.99% gold.
At the time of writing, gold costs $1,685.00 per ounce or around $54 per gram. Although gold prices may fluctuate, the overall price of physical gold has risen in value over the past 30 years.
Apart from buying gold bullion, investors may also choose to put their money into mutual funds or gold ETFs (exchange-traded funds) like the SPDR Gold Trust. A gold ETF invests in bullion and tracks its past performance. ETF units resemble stocks and eliminate the investor’s need to store and secure gold bullion.
Like gold, silver can be a good investment in an uncertain economy. While both gold and silver are valuable metals, silver prices are much lower and more volatile. At the time of writing, silver prices hover around $21 per ounce.
Silver price fluctuations are easier to understand if you keep in mind that, like gold to a greater extent, silver is a highly important industrial metal. Its price movements may depend on higher or lower demand in the electronics and computer industries and other applications that use this metal.
You can buy silver bullion as silver coins, rounds, or bars. Some coins are also collectibles with historical or numismatic value and thus may command higher demand and prices far beyond their melt value.
Platinum ranks third after gold and silver on the list of the most popular investment precious metals. Platinum has many uses, both in jewelry and industrial products like catalytic converters, dentistry equipment, and more. Industrial platinum demand may change with the shift towards electric cars, which don’t require platinum.
Platinum is currently worth around $960 per ounce. When buying bullion, look for platinum bars, coins, and rounds with a purity of .9995, i.e., containing at least 99.95% platinum.
While palladium looks a lot like platinum, this precious metal is slightly harder and less dense. Palladium is an important industrial metal with many uses, from chemical reaction catalysts to groundwater treatment agents.
Like platinum, palladium serves as a vital component in catalytic converters, so the demand for palladium may dip as more people choose electric vehicles that don’t use a converter. However, palladium may become more popular in other chemical applications, so it’s hard to predict its future worth.
An ounce of palladium currently sells for just under $1,800, which makes the metal slightly more expensive than gold. Like other precious metals, palladium comes in coin or bar form.
Other Precious Metals
Investors who are looking to diversify their precious metal portfolios may look into rarer precious metals, like iridium, osmium, rhodium, and ruthenium. These metals are typically hard to find and may fetch significantly higher prices than more conventional choices. For example, right now, an ounce of rhodium costs close to $14,000.
Other Fees You May Come Across
Apart from the market price of gold, silver, and other metals, investing in precious metals involves many administration and storage fees.
For example, if you set up a gold IRA account, you may pay:
- Application and setup fees
- Commission fees whenever you make a transaction through your IRA account
- Annual storage and maintenance fees
- Handling fees if you choose to ship bullion out of storage
- Markups on coins and other types of physical bullion, unless you buy directly from the mint
- Liability insurance
- Termination fees if you decide to close your account
Overall, a gold IRA account may cost a few hundred dollars per year to maintain. These ongoing costs are a factor to keep in mind if you consider investing in precious metals.
Cost of Precious Metal Storage
Physical possession of precious metals calls for a secure and convenient storage solution. If you buy physical precious metals, you have three main storage options:
- Home storage in a private safe, which offers easy accessibility but also exposes your bullion to dangers like burglary and natural disasters
- A safe deposit box or a private bank vault in a reliable financial institution
- Professional metal depositories, which usually offer segregated (private) and allocated (shared) storage options
For most investors, storing large quantities of physical metals in their homes is both impractical and risky. Storing precious metals in a bank or a secure depository is a far safer method that protects your investment from theft and loss. Moreover, a professional depository will provide optimal storage conditions that prevent the oxidation and tarnishing of precious metals.
Rather than setting fixed storage fees, depositories typically ask for a percentage of the value of the stored bullion. Silver may be more expensive to store than gold since it has a much lower value per weight unit.
While each storage depository offers different terms, you may expect to pay roughly 0.5% to 1% of your stored metal’s value per year, including a minimum monthly or annual fee. Depending on the quantities of the precious metals in storage, these fees can reach substantial amounts.
Do You Need to Pay Tax When You Buy Physical Precious Metals?
Potential tax costs are a primary concern for Americans who consider investing in precious metals. Precious metals count as “collectibles” under the IRS definition, and are thus subject to a 28% capital gains tax.
For example, this tax rate would apply if you sold your bullion after possessing it for more than a year. Other asset classes, in contrast, are usually subject to a 15% or 20% capital gains rate.
Moreover, this rule applies not just to physical precious metals, but also to the majority of metal ETFs.
Luckily, private U.S. investors may reduce the taxes they pay when they make a profit from their precious metals. One popular way to do this is to place metals in a Sprott Physical Bullion Trust, a Canada-based trust that counts as a PFIC (Passive Foreign Investment Company). Gains from assets in these trust types are subject to the 15% or 20% tax rate.
The larger your investment is, the more it pays off to place your assets in a PFIC. A qualified financial advisor can guide you through this process and help you complete the relevant IRS forms.
Are There Ways to Reduce Fees?
The number one question every gold and silver investor should ask is, “Am I getting maximum value for the price I’m paying?”
Wise investors follow best practices, such as comparing the prices of precious metals, IRA management, and storage costs.
One option investors may consider is storing precious metals overseas. Some offshore depositories in countries like Singapore offer affordable and secure storage options. Offshore storage of gold and other precious metals may appeal to people who are concerned about what may happen if central banks collapse and the government seizes private assets — similar to what happened in 1933, when President Franklin D. Roosevelt severely limited private gold ownership.
Using Dollar Cost Averaging
Dollar cost averaging (DCA) is regular, incremental purchasing of a certain type of asset for a certain price over a period of time. This strategy aims to counteract market volatility.
For example, let’s say you set aside $10,000 for investing in precious metals. According to the dollar cost averaging strategy, rather than buying $10,000 worth of metal at once, you may invest $1,000 every month over 10 months. Theoretically, this investment method should protect you against buying assets at high price points.
However, according to many professionals, dollar cost averaging is a questionable investment strategy. While it may be psychologically easier for beginner investors to pour small sums into precious metals rather than invest a lot of cash at once, DCA may actually result in losses when interest rates are low and the prices of precious metals are climbing steadily.
In general, timing the precious metals market is tricky for the vast majority of investors. Gold, silver, and other metals offer the most benefits as long-term, secure hedge assets that, in most cases, allow owners to profit over time.
Other Tips When Purchasing Precious Metals
To make the most of your physical metal investments, consider a few other factors. Namely, you should:
- Choose a trusted dealer. Excessively low prices or fishy transaction procedures are major red flags indicating fraud.
- Go for the most secure type of bullion, that is, standardized metal bars or rounds, or internationally recognized coins from government mints. Special edition coins, antique coins, and other collectibles may have high numismatic value, but there’s no guarantee you will find a buyer.
- Consider liquidity. Although rounds and coins come with a slightly higher premium, they may be easier to sell than metal bars.
- Diversify. With all the advantages of investing in precious metals, gold, silver, or platinum bullion won’t pay dividends at the same rate as more quickly appreciable assets, like stocks and real estate. A skilled financial advisor can help you divide your portfolio between assets that provide security and investments that boost your cash flow, including bullion, mutual funds, and stocks.
- Assess your risk tolerance. How much money are you willing to lose if the market crashes? Higher risks may offer bigger opportunities but a larger potential for loss when investing in precious metals. Your tolerance for risk may depend on your stage of life — for instance, if you are near retirement or want to make sure you have enough money to send a child to college next year.
Oxford Gold Group: Your Trusted Precious Metal Source
When you buy precious metals for investment purposes, choosing reputable precious metal companies will help make sure that you’re getting quality bullion with a high purity content.
Oxford Gold Group helps you diversify your investment portfolio with physical precious metals investing. Check out our offerings of silver, gold, platinum, and palladium coins and bars, and learn more about investing in precious metals in our free guide.
Disclaimer: the content of this article is for informational purposes only and shouldn’t serve as investment advice. Please consult a financial advisor before making an investment decision.