Investing in Gold and Precious Metals: A Complete Guide

Why does gold fascinate so much?

From the pharaohs in Egypt to modern central banks, gold has been considered synonymous with wealth, power, and security. Unlike fiat money (such as the dollar or euro), gold does not rely on a government to back it: it is a physical and scarce asset, with limited and costly extraction.

Alongside gold, there are other precious metals like silver, platinum, and palladium, which also serve as investments, stores of value, or key industrial inputs.

In this article we’ll see how to invest in gold and precious metals, the risks and benefits they present, and what to consider as a beginner, intermediate, or advanced investor.

Basics: What does it mean to invest in precious metals?

Investing in precious metals can be done in different ways, but they all share a central trait: they don’t generate returns by themselves (like interest or dividends). Profits depend solely on the price rising over time.

  • Gold: the most sought after as a “safe haven” in times of crisis.
  • Silver: more accessible, used both for investment and in industry (electronics, solar panels).
  • Platinum and palladium: rarer, more volatile, used in automobiles, jewelry, and chemicals.

Low, medium, or high risk:

  • Gold → Low (high liquidity, global recognition).
  • Silver → Medium (more volatility, price influenced by industry).
  • Platinum/palladium → High (small markets, sensitive to supply/demand).

How to invest in gold and precious metals

  1. Physical purchase

    • Bullion or coins: the most traditional method.
    • Advantage: tangible, not dependent on an intermediary.
    • Disadvantage: requires secure storage (safe or bank vault), custody costs, risk of theft.

  2. Certificates and metal accounts

    • Certificates backed by real gold held by banks or refineries are purchased.
    • Advantage: no need for personal storage.
    • Disadvantage: depends on the institution that holds it.

  3. Mining stocks

    • Buy shares in companies that mine gold, silver, or platinum.
    • Higher risk: the stock depends not only on metal prices but also on company management.

  4. Precious metals ETFs

    • Funds that track the price of gold (example: GLD) or silver (SLV).
    • A liquid and practical way to invest without physically holding the metal.

Strategies by investor level

For beginners

  • The main thing is to understand that gold does not “pay interest”: it’s insurance, not an income source.
  • Start with small amounts, such as silver coins or buying a gold ETF.
  • Research legislation: in some countries there are taxes on the purchase/sale of physical metals.

For intermediates

  • Analyze the gold/silver ratio: historically, gold is worth about 60–80 times more than silver. If the gap widens or narrows too much, some investors adjust their positions.
  • Explore diversified mining stocks (e.g., Barrick Gold, Newmont).
  • Use gold as hedging against inflation or currency devaluation.

For advanced investors

  • Trade derivatives like gold and silver futures (contracts that set a future price).
  • Sophisticated hedging strategies: hedge with gold while investing in more volatile assets like tech stocks.
  • Explore less traditional metals like palladium or rhodium, though highly volatile.

Advantages and disadvantages

Advantages:

  • Tangible, globally accepted asset.
  • Safe haven in times of crisis.
  • High liquidity (especially gold).

Disadvantages:

  • Doesn’t generate passive income.
  • Storage or custody costs.
  • High volatility in industrial metals.

Conclusion

In summary:

  • Beginner: ideally start with ETFs or small physical purchases of gold/silver, understanding it’s a reserve, not an income generator.
  • Intermediate: combine gold with silver and mining stocks, use it as inflation protection, and diversify with other assets.
  • Advanced: use futures, leverage, or explore exotic metals, always with a solid risk management plan.

Gold and precious metals serve a unique function: to protect and balance a portfolio. They won’t make anyone rich overnight, but they have proven for centuries to be a reliable backup in times of uncertainty.

It’s very important to diversify your portfolio to do it well—revisit the oracle to find out what else to invest in and how to do it right.

Glossary

Blue chips: established companies with decades of existence, billions in revenue, product diversification, consistent profits, cash reserves, and if they need financing, banks and markets lend to them because they trust their solvency.

Broker: a platform or financial intermediary that allows you to buy and sell stocks. Some brokers are international (e.g., Interactive Brokers, eToro), and others are local (depending on the country).

Call: a financial contract known as a derivative, whose value depends on a stock. It is the right to buy a stock at a certain price in the future.

Cap rate: capitalization rate, an indicator of the annual return of real estate investment.

Cash flow: monthly cash generated by the property after expenses (rent – taxes – maintenance).

Certificates of Deposit (CDs): "similar to fixed-term deposits, but usually issued by banks or financial institutions in more formal or international markets. They allow investing in local or foreign currencies. They may have fixed or variable interest options, depending on the contract.

Commodities: any basic, homogeneous, tradable product produced in large quantities and traded in global markets. They are used both for direct consumption and for industrial production.

Covered Call: investors holding stocks who sell “Call” options to generate extra income.

Covered bonds: bonds backed by specific assets, lower risk than regular corporate bonds.

ETF: an investment fund traded on the stock exchange like a stock.

Fixed-term deposits: depositing money in a bank for a set period in exchange for a fixed interest rate. At the end of the term, you recover your capital plus interest.

Futures contracts: agreements to buy or sell a certain quantity of an asset at a fixed price in the future.

Hedging: investing in stocks of other types such as precious metals or utilities to balance losses if company stocks fall.

High yield / junk bonds: small companies or those with liquidity problems, high risk, and high return.

Interest-bearing accounts: bank accounts that generate daily or monthly interest on the available balance.

Interest rate swaps: a financial contract between two parties to exchange interest payments on a notional principal. The most common swap is exchanging fixed rates for variable interest rates or futures.

Inverse ETFs: gain value when the index they track goes down.

Joint ventures: partnerships between two or more parties to develop a joint project, sharing risks, costs, and profits.

Leverage: using financing (mortgage or loan) to buy more properties than your capital would allow.

Leveraged ETFs: multiply market movements (2x or 3x), up or down.

Liquidity: in economics, liquidity is the ease with which an asset can be converted into cash without losing value.

Microcaps: very small cryptocurrencies by market cap since they are new or unknown projects. They have the potential to multiply by 100 but also the risk of disappearing overnight.

Mining (Bitcoin): using computers to validate transactions and earn rewards. Miners compete, consume electricity, and receive rewards in BTC.

Mutual Fund: a collective vehicle where multiple people contribute money that a professional manager invests in different financial assets: stocks, bonds, commodities, or a combination of them.

Net Asset Value (NAV): the price of each unit, which fluctuates according to the value of the mutual fund’s assets.

Offshore accounts: accounts opened in another country, used by some investors to access products not available locally or for tax advantages. It’s legal if declared, but each country has its own regulations.

Portfolio: the total set of financial assets (such as stocks, bonds, mutual funds, or real estate) owned by an investor or entity, aimed at achieving financial goals through diversification and risk management.

Put: a financial contract known as a derivative, whose value depends on a stock. It is the right to sell a stock at a certain price in the future.

REITs (Real Estate Investment Trusts): real estate funds that allow investing in large portfolios without directly buying property. They are traded through brokers like regular stocks, and there are even REIT ETFs.

Staking: some blockchains (Ethereum, Cardano, Solana) allow you to “stake” your coins on the network and earn interest. This generates passive income similar to a fixed-term deposit, but with more risk.

Unit share: when you contribute money to a mutual fund, you receive “units” representing your proportional participation in the portfolio.

Validation (Ethereum and other proof of stake): locking large amounts of coins to maintain the network and receive rewards.