If you are new to the world of commodities and precious metals then this article should be able to help you, giving you honest, succinct and simple answers to key questions that traders with limited experience but bags of enthusiasm are eager to know.
What Are Commodities?
Simply put, commodities are raw materials that the world needs and things that are traded on a grand scale. These include grain, oil and coffee.
What is a Commodity Markets?
A commodity market was once an actual place, one where grain, coffee and other materials were traded on the open floor, with traders seeing, touching and tasting to check for quality following the harvest. After a short time the traders realised that they didn’t need to see products and could invest based on speculation, knowing the harvest would come. They would then buy early, and if a global event changed the price, then they could buy or sell their investment. Thus the commodity market was born and these days people all over the world trade raw materials offline and online.
What Alters the Price of a Commodity?
Many global events can change the price of a commodity, and therefore the worth of your stock. If you bought coffee and a huge coffee shipment is then lost at sea, limiting the amount of coffee on the market, then it will become scarce at that time and the value will go up. The same goes for grain, which can be effected year to year by bad weather and poor harvests.
Is Online Commodity Trading the Same as Offline?
It’s different, of course it is. When you’re online you’re not shouting and yelling with the rest of them on a cramped trading floor, rubbing shoulders with eager, anxious traders seeking to earn their daily fortune. The fundamentals are the same though, and that’s why many traders are turning to the virtual world to do their trading. You are not losing out by trading online as opposed to offline, if anything you are giving yourself an advantage by allowing more comfort, which can lead to better decisions.
How Can I invest in Previous Metals?
If you actually want to invest in precious metals over the long-term, which is to say that you don’t simply want to trade them with a view to selling them over the short-term on the markets, then there are two ways to go about it. The first, and perhaps the most popular, is to simply buy the metals yourself and keep them safe in your home or in a safety deposit box. If you buy when the prices are low and hold onto them, then you can sell when they are high and make a very nice profit. You could be waiting years though and if paying for a safety deposit box then it could eat into your profits.
Another way of doing this is also going to eat into any future profits, and that is by using a secure vault. Many websites basically allow you to purchase the metals and then they will store them for you. They will send you a certificate to say what you have, but they will also charge to hold onto them for you. Over the short term this can be beneficial, as you can buy and sell them without ever needing to see them, but over the long-term it is not advised.
What Precious Metals Should I Invest In?
It all depends on the market at the time you plan on investing. As this article is being written, for instance, it is a great time to invest in silver, and also a decent time to invest in gold, at least as far as we are concerned. Both of these metals are also great for collectors, as they satisfy the magpie in all of us. Platinum, which is actually cheaper than gold at the time of writing, is also worth investing in.
Palladium is another popular metal, and many people also choose to invest in copper, although this is not a precious metal and you need a lot of space to hold onto it, considering you can get more than 5 times as much copper as you can silver, and hundreds of times as much copper as you can gold.
Should I Insure my Gold and Silver Collection?
If you have a decent amount then yes, you should. If it is stolen then you could stand to lose a lot of money.
Should I Purchase Silver Bars or Coins?
This is mostly about preference, but with silver we tend to lean towards coins. You should also try to get standard silver for as close to the spot price as you can get. But there are some premium coins that you can get, all of which cost much more than spot, but can also be sold for a higher amount. If you buy a standard bar of silver and then wait ten years for the price of silver to go up, you can sell for a small profit. If, however, you buy a coin that comes from a popular mint, and is a limited edition proof, then as well as the increase in the value of silver after a decade or so, you can also benefit from an increase in the value of that particular coin.
Should I Purchase Gold Bars or Coins?
Whilst some silver coins are popular and can carry a huge premium, the same can’t really be said for gold coins. There are ones that come with a premium, but gold is much more expensive, which means it is often not viable for a mint to run regular proofs and strike thousands of coins. Simply put, gold should always be about acquiring the raw product at as close to spot price as you can. You should also concentrate on smaller amounts, knowing that they will be easier to sell in the future.
For instance, 20 bars of 100 grams each will be much easier to find buyers for than a single 2 kilogram bar.
What is a “Spot” Price?
The “spot” price is the actual value of the metal. You are unlikely to find anything cheaper than this, as even the most ugly gold or silver pieces can, theocratically, be melted down and sold at the spot price. Many times you will see advertisements such as “$1 over spot” which is generally considered a good deal, depending on how much you plan to purchase. In the UK, this would be an impossible deal to find on silver due to the VAT price, which adds an extra 20%, but we can purchase gold without any VAT.
Do I have to Pay VAT on Silver in the UK?
Unfortunately, yes. If you want to buy silver in this country then you need to pay that price. There are ways around it though, such as if you are purchasing second hand, maybe from an auction site, a charity shop or a car boot sale. There are those who don’t always realise what they have is pure silver, and those that don’t understand the value of it when they do. More often than not though, they often overestimate the price, thinking silver is worth more than it actually is, so finding cheap silver is very rare.
You should avoid trying to ship silver from the US, as customs could force you to pay the 20% charge on top of the huge postage and packing fee you just paid. You can purchase from Germany though, as these pay a very small VAT on silver and you will pay this when making your purchase, legally acquiring the silver and not needing to pay anything extra once it arrives. Be careful which site you use though, as not all are legit. If you want more info, search the Regulated Broker site as we have discussed this at length elsewhere.