Precious Metals Trading Guide | How to Build an Investment Portfolio with Gold and Silver?

Precious metals investment has always been an important option in asset allocation. Whether for hedging inflation risk, diversifying investment risk, or seeking safe-haven assets, precious metals play an indispensable role. Many investors strengthen their portfolio’s risk resistance by investing in gold, silver, platinum, and palladium. This article will provide a comprehensive understanding of various methods and strategies for precious metals investment from a practical perspective.

The Four Major Popular Precious Metals: Each with Its Own Investment Advantages

Precious metals refer to rare, naturally occurring metals with high economic value. They are mainly divided into four categories: gold, silver, platinum, and palladium.

Gold: A Timeless Store of Value

Gold is highly revered for five main reasons. First, for centuries, gold has been regarded as a trusted store of value; even during economic crises or currency fluctuations, gold’s purchasing power remains stable. Second, gold has extremely high liquidity and can be quickly bought and sold worldwide in various forms (bars, coins, jewelry, etc.). Third, gold is negatively correlated with assets like stocks and bonds, making it a powerful tool for portfolio diversification. Additionally, during inflation, gold often performs strongly, effectively hedging against fiat currency devaluation. Lastly, gold has widespread industrial applications in medical, automotive, and electronic fields, ensuring continuous market demand.

Silver: Industrial Demand-Driven Investment Target

Silver is not only a precious metal but also an important industrial raw material. Its diverse industrial applications (solar energy, electronics, photography, etc.) provide additional demand support, which is an advantage other precious metals lack. Like gold, silver can effectively counteract inflation. As a long-standing store of value, silver also has value preservation characteristics, making it an important choice for long-term investors.

Platinum and Palladium: Scarcity-Driven High-Potential Assets

Platinum is even rarer than gold and is widely used in jewelry and the automotive industry, with long-term value potential not to be underestimated. Palladium is a key component of catalytic converters and plays an important role in the automotive sector. Due to global mining restrictions and geopolitical factors, palladium supply may be limited, driving up prices. However, note that these two precious metals are more sensitive to industrial economic fluctuations.

Five Investment Channels Compared: Find the Most Suitable Method for You

Direct Holding of Physical Spot: The Most Traditional but Least Efficient

Buying gold bars, coins, or jewelry is the most direct method, but it has obvious disadvantages for ordinary investors. Physical precious metals require dedicated storage space, lack liquidity, and transaction costs are high, making them unsuitable for large or frequent trades.

Gold Savings Account: Convenient but Higher Cost

By opening a gold savings account with a bank, investors can buy and sell gold. This method usually adopts a periodic investment approach but involves account opening fees (usually a few hundred yuan) and spread costs. Additionally, gold savings accounts do not accrue interest, and handling fees are relatively high.

Gold ETF: Flexible and Low Cost

Exchange-Traded Funds (ETFs) tracking gold prices are special funds listed on stock exchanges, and buying them is as simple as trading stocks. Investors need to pay management fees and bear the risk of gold price fluctuations. However, compared to physical holdings, costs are significantly lower.

Futures Contracts: High Leverage but Caution Needed

Futures allow investors to buy or sell contracts at a specific price on a future date, supporting leverage and two-way trading, with good market liquidity. But futures require settlement or closing out by a specific date; incorrect predictions can lead to significant losses, and there are fixed delivery dates.

CFD (Contracts for Difference): The Most Flexible Choice

CFDs track the price changes of spot precious metals, offering extremely high flexibility and very low investment thresholds, with minimum trading as low as 0.01 lots. They support two-way trading without fixed delivery dates, offering high risk-reward ratios. However, due to leverage, investors need professional trading knowledge and strong risk management skills.

If you prefer short-term trading and market opportunities, CFDs are a simple and flexible option. But remember, leverage amplifies both gains and losses—price volatility can lead to losses exceeding the initial investment.

Why Is Precious Metals Investment Worth Paying Attention To?

Precious metals investment offers multiple advantages. First, it is an effective tool against inflation; central banks often hold large gold reserves to mitigate financial risks, and individual investors can also hedge risks by purchasing precious metals. Second, precious metals have intrinsic value—widely used in industrial, electronic, and automotive sectors—offering both store of value and investment potential. Furthermore, the globalized nature of precious metals trading provides high market freedom, supporting 24-hour continuous trading with high liquidity. Additionally, there are diverse trading methods: futures allow both long and short positions with low fees. Lastly, precious metals have low or even negative correlation with stocks and bonds, so even a small allocation can effectively reduce overall portfolio volatility and risk.

Risks Not to Be Ignored: What You Need to Know

Although precious metals have many advantages, their risks should not be underestimated. Prices of precious metals can be highly volatile in the short term, driven by supply and demand and geopolitical factors, with 20%~30% fluctuations not uncommon. Therefore, precious metals are inherently high-risk investments.

There is also the issue of counterfeit products. Some unscrupulous merchants sell fake gold bars or coins, which can be difficult to distinguish from genuine ones, leading investors to be deceived.

If choosing futures trading, leverage risk requires particular caution. Leverage means investors only need to pay a small margin to control a large position, but price fluctuations can cause losses exceeding the initial investment.

Practical Investment Strategies: Tailored Allocation Plans

The precious metals market is full of opportunities; mastering the right strategies can make your efforts more effective.

Allocate Investment Ratios Based on Risk Tolerance

Dividing investments between stocks and precious metals is key to risk management:

• Conservative investors: 10% precious metals, 90% stocks
• Moderate investors: 20% precious metals, 80% stocks
• Aggressive investors: 30% precious metals, 70% stocks

These ratios can be flexibly adjusted according to personal goals and preferences.

Passive Investment vs. Active Trading

Passive management strategies are suitable for investors who believe in the long-term value of gold. Buying physical precious metals or ETFs and holding long-term, or using index tracking (such as gold mining ETFs), enables automated investment without frequent operations.

Active management strategies are suitable for experienced traders. They involve short-term trading based on market timing to profit from volatility. This requires market analysis skills and trading experience, making it more challenging.

For short-term traders, futures and CFDs are more appropriate tools, but they require professional risk management.

Key Takeaways

In the current market environment, precious metals are an indispensable investment for both individual investors and financial institutions. They offer inflation protection, long-term viability, diversification, and liquidity, making them highly valuable for portfolios. Gold, silver, platinum, and palladium each have their own characteristics, and investors should choose based on their needs.

Compared to stock investments, precious metals carry different risks. Long-term value believers can buy physical metals or ETFs and wait for appreciation; traders interested in market timing can adopt active strategies using futures or CFDs to profit from market movements.

The most important thing is to implement proper risk control, using tools like stop-loss and trailing stop to protect capital. Regardless of the chosen investment method, a clear plan based on personal risk tolerance and investment goals should be formulated, rather than blindly following trends.