Beginners' Guide To Buying Metals

by: Derrick Lilly

"I wish I never bought silver," says one discouraged forum member. "So far I've lost $4,700 and gained nothing since my silver investment. [I] was bullish at above $40 with everybody saying it's going to the moon and it's a great investment, what a load of crap."

Reading this post on one of my favorite metals forums really got me thinking because I imagine there are many metals investors out there who feel exactly the same way. Heck, I'll even admit that I am deeply underwater on some of my own purchases; but a decline in the spot price and an unrealized loss doesn't necessarily mean it's time to run for the exits or liquidate holdings.

Silver, as with any of the precious metals, is not for the faint-hearted or risk-averse. The markets move in mysterious ways and many investors are equally moved emotionally when the journey gets bumpy. Gains, losses, and volatility are all part of the game, however, and a loss today can turn into a gain tomorrow. Staying levelheaded and keeping your end-goal in mind is ever more important when investing in volatile vehicles. So how is a new or inexperienced metals buyer supposed to do this? Here are some basics:

Know Your Goals

Why do you want to own metals? What metals do you want to own? What do you intend to do with this investment in the future? What is your investment timeframe? Where do you see this investment going? Will short-term ups and downs impact your goal? These are just some of the questions you need to ask yourself. If you can't clearly answer these questions, you need to rethink making a purchase.

"Paper" or Physical

Once you have clearly identified your goals, you can decide the best way for you to enter the market. While there are numerous ways to gain exposure to precious metals (jewelry, stock in miners, numismatic coins, etc.), I'm only going to reference ETFs or physical bullion this time around. ETFs are great for those who want to actively trade the movements in the metals markets. Generally, physical bullion is the choice for investors who want to accumulate a "stack" to hold/grow for years to come.

Without a doubt, the metals markets will be very volatile for the foreseeable future. If you can commit the time to actively monitor the markets, day trade or at least frequently trade, then ETFs may be the choice for you. ETFs will allow you to enter and exit positions in various metals without the hassle of liquidating physical metals. For gold, you can look into the popular SPDR Gold Trust (GLD), Sprott Physical Gold Trust (PHYS), PowerShares DB Gold Fund (DGL), or ProShares Ultra Gold (UGL) as some leading options. For silver, iShares Silver Trust (SLV), Sprott Physical Silver Trust (PSLV), or PowerShares DB Silver Fund (DBS) may work for you. For platinum, ETFS Physical Platinum Shares (PPLT) is your leading choice.

If your plan is to invest in metals over a long period and you prefer the certainty of holding the physical metals in your possession, bullion is an exciting way to go. I admit that swapping out some crumpled paper dollars for intricately minted bullion bars or coins puts a big smile on my face. If you don't mind handling the metals, can store them securely and don't foresee any trouble in liquidating them when the time comes, physical is the real deal. When it comes time to purchase, more than likely a simple Google search will reveal a local coin dealer near you that you didn't know existed, many metropolitan areas have regular shows/conventions, and there are numerous respectable online dealers to choose from. If you establish yourself on a precious metals forum, you can likely make private-party purchases/trades/sales with other respected members as well.


Before making any purchases, especially sizeable ones, I like to do a little bit of homework in order to create a strategy. In order to maximize my purchasing power I try to buy the metals that I think are "on sale" compared to their trading history. In one of my previous articles, "Precious Metals Are On Sale! Or Are They?," I established a chart of ratios that would help me determine which metal to buy or sell when:


Hoard when 0.7 - 0.8 oz. gold buys 1 oz. platinum

Accumulate when 0.8 - 0.9 oz. gold buys 1 oz. platinum

Hold when 0.9 - 1.4 oz. gold buys 1 oz. platinum

Swap when 1.5 - 1.75 oz. gold buys 1 oz. platinum

Liquidate when 1.75+ oz. gold buys 1 oz. platinum


Hoard when 63+ oz. silver buys 1 oz. gold

Accumulate when 57 - 62 oz. silver buys 1 oz. gold

Hold when 34 - 56 oz. silver buys 1 oz. gold

Swap when 20 - 33 oz. silver buys 1 oz. gold

Liquidate when 19 or less oz. silver buys 1 oz. gold


If neither platinum nor silver look reasonable when I am ready for another purchase, I simply add to my gold holdings. Since I feel like gold will always be an essential part of any portfolio, I only plan to swap or sell it when the ratios are very favorable to do so.

Here's a 10-year chart to help you make your own decisions.

10-year chartClick to enlarge

Make Your Purchase(s)

You know what you want and where to get it, now it's time to put your money to work. Just how much to invest is up to you, your goals, budget and risk tolerance. Most importantly, don't dive in with money you can't afford to lose, and secondly, don't go "all-in" all at once. Timing the markets is very hard, and you don't want to end up regretting your purchase like the investor quoted above.

And while discussing and predicting where the market is heading, like we did in my last article, "Are Metals Due for a Meltdown?," it's nearly impossible to truly know. That's why I personally try to make purchases monthly. I also like to make an additional purchase when I see a sizeable "dip". Others I know make purchases weekly; some even trade daily. You have to do what works for you, but align the purchases with your overarching goal.

For those entering the metals markets with the intention to stay in for the long haul, the technique of dollar-cost averaging will be your best ally. As Investopedia defines it, dollar-cost averaging is, "The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high." Utilizing this strategy will help you stay committed to your goal while smoothing out the impact of volatile price movements--and it will keep you calmer, too!

I hope this article helps you think about the basics, but I encourage you to always do your own due diligence before making any investments. Have any tips or strategies? Feel free to share!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am long physical gold, platinum and silver bullion.