Precious Metals Market Beginner's Guide | How to Build Your Own Gold and Silver Investment Portfolio

In an era of increasing global economic volatility, many investors are turning their attention to precious metals, a traditional safe-haven asset. Precious metal investment is not a new concept, but for many, questions remain about how to start this investment journey. This article will explore various aspects of precious metal investing to help you build a comprehensive understanding.

Understanding Precious Metals｜More Than Just Rare Metals

Precious metals (Precious Metal) refer to naturally occurring, high-scarcity, and economically valuable metallic assets. Historically, precious metals have served as currency and symbols of wealth. In modern financial markets, they are highly regarded for their industrial applications and investment properties.

The main precious metals include gold, silver, and six platinum group elements. Among these, gold, silver, platinum, and palladium are preferred by investors due to their high prices, stable chemical properties, and strong value preservation. In actual trading markets, gold and silver account for the majority of trading volume, while other varieties have their own unique investment opportunities and risks.

Four Major Attractions of Gold Investment

Gold is the most popular precious metal investment, mainly due to the following characteristics:

Value stability is the core advantage of gold. For centuries, gold has maintained its purchasing power during various economic crises and currency devaluations, making it a solid choice in uncertain economic environments. When fiat currencies lose their purchasing power, gold can still retain its value, especially important during periods of high inflation.

High liquidity means gold can be quickly converted into cash worldwide. Whether in the form of coins, bars, or jewelry, gold can be easily traded across the globe, functioning well in economic downturns or any market environment.

Significant diversification effect. Gold has a negative correlation with traditional assets like stocks and bonds, meaning that when the stock market declines, gold often rises, effectively reducing overall portfolio volatility.

Widespread industrial applications, including in medical, automotive, electronics, and defense sectors, ensuring ongoing demand.

Investment Characteristics of Silver, Platinum, and Palladium

Silver not only shares similar inflation-hedging properties with gold but also has abundant industrial uses (electronics, solar energy, etc.), creating additional price drivers. Silver’s historical status is long-standing, but its price tends to be more volatile.

Platinum is more scarce than gold and silver, with extensive applications in jewelry and automotive catalytic converters, offering investors diversified options, though market liquidity is relatively lower.

Palladium plays a key role in the automotive industry (a crucial component of catalytic converters), with supply affected by mining output and geopolitical factors. This can lead to price volatility opportunities but also increases investment complexity.

Five Ways to Invest in Precious Metals｜Choose the Most Suitable Method

Precious metal investors can choose from various trading methods. Each has its unique advantages and limitations, depending on investment style and capital scale.

Physical Precious Metals｜Most Direct but Highest Cost

Buying coins, jewelry, or bars is the most straightforward approach. However, for ordinary investors, physical precious metals require specialized storage, regular authentication, and incur high transaction costs (buy-sell spreads typically between 1%-10%), with relatively low liquidity. This method is more suitable for long-term holding and collection enthusiasts, not for frequent traders.

Gold Savings Account｜Convenient Bank-Managed Option

By opening a gold savings account at a bank, investors can easily buy and sell gold without physical delivery. Account opening fees are usually around 100 yuan (based on some banks), and transaction spreads apply during buying and selling. This method does not accrue interest and has relatively higher fees but offers ease of operation.

Gold ETFs｜Smart Choice for Portfolio Integration

Gold ETFs are funds listed on exchanges designed to track gold prices. Buying or selling gold ETFs is as simple as trading stocks. Costs include trading fees of about 0.25% (Taiwan stock gold ETF) to less than 0.1% (US stock gold ETF), with management fees between 0.4%-1.15%. This method offers high liquidity and relatively low costs, making it the preferred choice for most long-term investors.

Futures Trading｜High Leverage, Dual Opportunities

Futures allow investors to buy or sell gold at a specific price on a future date via contracts. Futures support leverage and dual-direction trading, with active markets, good liquidity, and low trading costs (around 0.008%-0.015%). However, futures have fixed delivery dates, and incorrect predictions or missed timing can lead to losses. Suitable for investors with some trading experience.

Contract for Difference (CFD)｜Most Flexible Short-Term Trading Tool

CFDs track the spot gold price, with clear trading rules, offering leverage, margin rates, and spread information. The main advantage of CFDs is high flexibility, low investment threshold (minimum trade size of just 0.01 lot), and no fixed delivery date. Trading costs range from 0.02%-0.04%, with very low interest costs (about 0.00685% per day).

Gold CFDs allow investors to trade contracts based on price movements without physically owning gold. These derivatives can be used for hedging or speculation. However, leverage also entails higher risks, requiring professional trading knowledge and risk management skills.

( Cost Comparison of the Five Investment Methods

Three Major Advantages of Precious Metal Investment｜Why Allocate Precious Metals

Inflation Hedge is the core value of precious metals. As globally recognized safe-haven assets, gold and silver often perform well during inflationary periods, effectively protecting asset purchasing power.

Intrinsic Value Support comes from their global recognition and extensive industrial applications. Precious metals have real demand in electronics, automotive, aerospace, and other fields, making them more than just speculative commodities.

High Liquidity Market ensures investors can enter and exit at any time. Precious metals are traded worldwide 24/7, with high market freedom, diverse trading methods, support for long and short positions, low transaction fees, and easy capital flow.

Portfolio Diversification Effect is reflected in the low or negative correlation between precious metals and traditional assets like stocks and bonds. Even allocating a small portion of a portfolio to precious metals can significantly reduce overall volatility and risk.

Precious Metal Investment Risk Alerts｜Know Yourself and the Market for Steady Investment

) Price Volatility Risk

While precious metals have value preservation functions, their short-term prices can be quite volatile. Supply-demand imbalances, geopolitical conflicts, and central bank policy adjustments can cause 20%-30% price swings, comparable to or even exceeding stock market volatility. Short-term investors should be psychologically prepared.

Counterfeit Product Risk

Market presence of counterfeit products is significant. Some vendors sell fake bars or coins that look authentic but are worthless. Investors must choose reputable channels and trusted merchants when purchasing physical precious metals and regularly authenticate.

Leverage Trading Risks

Using leverage in futures or CFD trading means only a small margin is needed to control a large contract value. While this amplifies gains, it also magnifies losses. Price fluctuations can lead to losses exceeding the initial investment and may require additional margin calls. Suitable for experienced traders.

Precious Metal Investment Strategies｜Scientific Allocation to Reduce Risks

Adjusting Proportions Based on Risk Tolerance

Investors should tailor their precious metal allocation according to their risk appetite:

• 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 based on personal goals and market conditions.

Passive Investment Strategy

Investors who believe in the long-term value of gold can adopt a buy-and-hold approach. Purchase gold ETFs or physical gold and hold long-term, avoiding frequent trading, to hedge against long-term inflation and economic uncertainties. ETFs can automatically track market indices or specific sectors (e.g., gold mining companies), reducing the need for active management.

Active Trading Strategy

Active traders attempt to capitalize on market timing, seeking profits from short-term fluctuations. This requires solid technical analysis skills, real-time monitoring, and quick decision-making. Using futures or CFDs, investors can profit from both rising and falling markets, but risks are higher.

Importance of Risk Management Tools

Regardless of the strategy, investors should make good use of stop-loss, trailing stop, and other risk management tools. Setting reasonable stop-loss levels can effectively limit individual losses, while trailing stops can lock in profits as prices rise. These tools are key to capital preservation.

Market Outlook｜Precious Metals Worth Long-Term Attention

In the current market environment, precious metals remain important investment options for both individual investors and financial institutions. Gold and silver, due to their high liquidity and reputation, are always popular; platinum and palladium, with their industrial focus and relatively scarce supply, offer new opportunities for diversification.

Compared to stock investments, precious metals involve distinct risks and strategies. Long-term investors may buy physical metals or ETFs to wait for appreciation; active traders can leverage futures and CFDs to seize market timing opportunities. The key is to choose suitable tools and strategies based on individual circumstances.

Summary｜Core Points of Precious Metal Investment

Precious metals play a vital role in diversified portfolios. Gold, silver, platinum, and palladium each have unique values, and investors should select according to their needs. Whether aiming for long-term preservation or short-term trading, there are suitable ways to participate in the precious metals market.

The key is to manage risks well, utilize stop-loss tools, and continuously learn about market dynamics. Precious metal investment is not a static choice but requires dynamic adjustment based on market conditions and personal goals. Rational analysis and cautious operation are essential to steadily increasing value in this market.