Introduction to Precious Metal Investment in Malaysia
Categories: Gold and Commodities Trading
Publish date: 2023-1-6
Investing in precious metals is attractive to investors because there are a variety of investment options that can diversify the portfolio. But which precious metal is most suitable for investment?
Read on to learn about the most popular metal investments, why they are considered "precious metals", and which investment method may best suit your strategy.
In a hurry? If you are looking to get started precious metal trading, FXCM is one of the leading brokers to consider in Malaysia.
Table of Contents
- What precious metals are suitable for investment?
- How to invest in precious metal market?
- Common Stock
- Exchange Traded Funds (ETFs) and Mutual Funds
- Futures and options
- Purchase precious metals on FXCM Markets
- What are the benefits and risks of investing in precious metals?
What precious metals are suitable for investment?
Precious metals are rare metals with high economic value. Its value comes from their scarcity, practicality in industrial operation and investment characteristics.
Investing in precious metals is a good way to diversify your portfolio. You can hedge inflation in any portfolio.
For novice investors, it may be a difficult choice to decide which metal to invest in, because each metal exists in a different form and has its own unique characteristics and market.
The popular precious metals in the current metal market include gold, silver, platinum, copper and palladium. The following will introduce these five precious metals in detail to help you understand metal investment in depth.
Among precious metals, gold is the most popular choice for investors. Unlike most metals, gold is not easy to rust or corrode, has ductility, and is a good thermal and electrical conductor. It has a variety of applications in the field of electronic manufacturing and dental health care, and it is widely known that it is a form of currency and the basis of jewelry.
Every day of the year, the market determines the current value of gold. Its price changes mainly according to the impact of market sentiment fluctuations. Compared with other commodities, it is less affected by the laws of supply and demand. This is because there is very little new gold mined compared with the gold already stockpiled. This means that gold prices fall when its owners want to sell and rise when they want to buy.
The increase in the willingness to hoard precious metals can be traced to the following reasons:
- It has the ability to resist economic recession and maintain its value. In times of currency and political turmoil, investing in gold is often seen as a safe way to preserve value.
- Compared with cash investment, gold can effectively hedge against inflation. Therefore, in the period of inflation, when the return rate of the stock, bond or real estate market is negative, investors will often seek to invest in gold.
- In the face of war and political turbulence, if gold is hoarded, it can be exchanged for necessities such as food, shelter, etc.
Although gold is a good investment, the cost of buying a large amount of gold may be difficult for some new investors to bear.
The value index of silver is different from gold, and its price will fluctuate with the demand for value storage and industrial use. In other words, the price of silver is largely affected by the demand of metal hoarders and the availability and demand of silver for industrial use.
Although silver, like gold, has monetary and decorative uses, it is also affected by large industrial demand. This means that the metal is not only bought by investors, but also by manufacturers who use it for various purposes.
Because of this, the silver market price is more unstable than the gold market price.
Compared with gold, silver is relatively cheap, which is a good choice for new investors, because investors can gradually establish and increase the portfolio of precious metals from a small amount of capital.
As a hoard, silver is usually traded in line with gold. However, this price may be affected by the industrial supply and demand of metals. In recent years, silver prices have fluctuated for the following reasons:
- It has a wide range of uses. Silver not only exists in consumer goods such as batteries and electronic products, but also exists in more industrial environments, such as catalysts for chemical production, and is also used in medical equipment and automobile industries
- For a long time, due to the extensive use of silver based photographic film, silver is crucial to the photographic industry. However, the emergence of digital photography has replaced this market
- The emerging market economies in the East have a huge demand for medical products and electrical appliances that need silver
- Semiconductor, microcircuit and battery markets all rely heavily on silver. Due to its electrical characteristics, silver is an important component of solar panels
- Silver is used for decorative and practical purposes and is also minted into coins and gold bars.
Like gold and silver, platinum is constantly traded on international commodity exchanges. As platinum is more rare and less mined, the price of platinum in the market is usually higher than gold during periods of political stability.
The price of platinum is also affected by several factors, which should be considered by any investor before adding it to the portfolio:
- Platinum is used to manufacture automotive catalysts, which helps reduce the harmfulness of emissions
- Platinum demand in jewelry manufacturing and computer industry
- In addition to supply and demand, geopolitical factors also have a significant impact on the prices of platinum mining countries. For example, due to the small number of cars produced, it means that the demand for automotive catalysts has decreased, which makes the price of platinum fall during COVID-19. Platinum prices will rise in near future as demand increases again
- Platinum ore is mainly distributed in Russia and South Africa. This makes the price more likely to be manipulated or supported artificially.
For thousands of years, copper has been essential to technology, and it still is in the modern industrial revolution. The usage of copper is widespread throughout the world. It is seen as a commodity that closely tracks the global market as a result of this. Here are three typical explanations for why traders favour copper as a commodity:
- Speculating on Industrial Development - There are numerous industrial uses for copper. It effectively conducts energy, particularly heat and electricity. Without it, it would be challenging to construct any sizable industrial infrastructure. Copper consumption should increase as emerging nations like Asia, Eastern Europe, and Africa modernize their economies and build out their infrastructure.
- Betting on the Housing Market - During the Great Recession of 2008, the world's housing market overheated and collapsed. Housing demand should increase alongside emerging markets in those areas.
- Speculation on the Supply-Demand Gap - The demand for copper is frequently not met by copper mining and recycling. A portion of this extra demand might be absorbed by mine expansions and new mines. The imbalance can persist for years to come due to environmental issues and restrictions on land use. Trading copper is a means to make predictions about the supply/demand gap. With the appropriate combination of measures, the demand-side imbalance might, however, reverse or level out.
Palladium is a little-known member of the family of precious metals, which is another precious metal with important industrial uses. It is used in a variety of manufacturing processes, especially electronic and industrial products. It is also used in dentistry, medicine, chemistry, jewelry, groundwater purification and other fields.
Palladium has many similarities with platinum in terms of characteristics and market, and their respective prices also reflect this, including:
- The largest industrial use of palladium is catalytic converter
- Palladium is 12.6% harder than platinum and is a more durable material
- It is widely used to manufacture solar energy and fuel cells
How to invest in precious metal market?
If you are interested in investing in precious metals in Malaysia, there are several ways you can choose from. You can invest in physical gold bars or by investing in exchange traded funds (ETFs), common stocks, futures or options.
In addition to the actual commodities themselves, you can also invest in mining companies. Precious metal miners' shares were in line with the price trend within commodities. This provides another way to invest in the commodities you choose.
Exchange Traded Funds (ETFs) and Mutual Funds
Both ETFs and mutual funds provide investors with a convenient and liquid way to invest in commodities without retaining physical gold bars. They are run by external companies and use your investments in their own portfolios. This usually means that you have a range of investments, and you should choose the asset that is best for you.
Futures and options
Futures are another way to buy commodities, allowing investors to have more guesses about the price trend. When investing in futures contracts, you agree to purchase assets on the expiration date of the contract, and the price is arranged by you previously. It will be beneficial if you know how to observe the price trend and you can choose to enter at the right time.
The opposite of buying futures contracts is the spot market, which is more common in the foreign exchange market.
Certificates provide the benefit of direct possession of gold bars or other metals without transport or storage problems. However, if you encounter a disaster and are eager to seek insurance, please remember that certificates are only certificates, which do not guarantee that you can exchange them for physical products.
Purchase precious metals on FXCM Markets
FXCM trades various commodity CFDs on its website. If you think it is more beneficial for you, you can visit some major fund managers. To begin trading forex, indices, commodities, and cryptocurrency CFDs, you can OPEN A FOREX ACCOUNT.
If you lack confidence, you can use virtual or free demo accounts to practice. In this way, you can determine your investment strategy without the pressure of risk management.
What are the benefits and risks of investing in precious metals?
There are several benefits and risks to investing in precious metals, including:
- It provides a means to hedge against inflation. The growth rate of precious metal prices is usually equal to or higher than the inflation rate
- It is a tangible asset and a physical object, so it has value outside the financial market, such as jewelry or industrial use
- They are highly liquid investments, which means they can be quickly converted into cash
- Provides portfolio diversification because the price of precious metals does not always follow the same trend as the stock or bond market
- If you hold physical metal, you need to pay for storage and insurance, and there is a possibility of theft
- Price volatility is one of the risks. The current price of precious metals may be affected by many variables, such as economic conditions, investor demand, commodity supply and demand and inflation
- Non physical gold bar investments, such as stocks, exchange traded funds and mutual funds, have different risk factors. For example, if a mining company has cost overruns due to financial difficulties or poor management, the stock price may fall
- The rise of cryptocurrency poses a new threat to the precious metal market. Given that cryptocurrency holds the same investment attributes as gold and silver, it will restrain the price of precious metals
- Precious metals have no cash flow. Unlike stocks and bonds, precious metals do not pay dividends or interest. This means that price growth is the only factor determining its return.
Investment in precious metals is a traditional way to create opportunities and provide long-term stability in investment. Investing in precious metals can cushion market volatility or poor performance of other investments in the diversified portfolio.
Although investing in precious metals may not be suitable for everyone, it is a diversification strategy worth considering. If you are weighing your investment options, you may consider the advantages and disadvantages of precious metals. After fully understanding and ensuring that the risks involved in the investment are what you can bear, you can consider including them in your investment portfolio.
[Disclaimer] The articles above are purely personal opinions and are not intended to be investment advice. Only for the purpose of mutual learning and sharing. There is no express or implied warranty regarding the accuracy or completeness of the above-mentioned information. Anyone who relies on the information, ideas, or data contained in this article does so entirely at their own risk.