Investing in precious metals is a great way to protect you during times of financial uncertainty and can be a great way to plan for your retirement. But it can also be intimidating, overwhelming, and stressful if you don't take the time to do your research.
Before starting your investment, it's important that you have a complete understanding of the market and the terms specific to investing in precious metals. Below is a list of terms you'll frequently see when investing in precious metals. Understanding these terms will help you make an educated decision when it comes to your investment.
Precious Metals: A classification of metals that is considered to be rare and/or have a high economic value
Bullion: (1) Gold, silver, platinum, or palladium coins which closely follow spot prices and have little or no numismatic value. (2) The form in which metal is shaped, such as bars, ingots, or wafer.
Bullion Coin: A bullion coin is valued by its weight in a specific precious metal. Its value is less than five percent over its intrinsic value. Examples of bullion coins include the Gold American Eagle, the South Africa Krugerrand, and the Canadian Maple Leaf.
Numismatic Coins: Coins whose price depends more on their rarity, condition, dates, and mint marks than on their precious metals content
Fiat Money: Paper money that is legal tender by law but is not backed by a physical commodity such as gold and silver.
BU: Brilliant uncirculated. This is used to describe a coin in new condition. It is used for a coin that has no wear and shows original luster, but it may have handling marks or other imperfections
Spot: The hypothetical number that trades on paper. The spot price is related to paper trades, not physical metals. The spot price is constantly changing.
Ask: The price at which a dealer offers to sell
Bid: The price at which a dealer is willing to buy
Spread: The difference between the ask and bid price. The spread helps you determine what the sell price needs to be in order to create an investment gain
Premium: The price that a precious metal product costs over the spot price. Whatever you pay over the spot price for the product you purchase (including fees, insurance, etc.) can be called a premium
Mint: The facility where a coin or bar was manufactured. Examples of mints include the United States Mint and the Royal Canadian Mint
Proof: The manner in which a coin was minted. Highly polished dies and special planchets are used to produce coins with a mirror-like finish. Proof coins are generally made for collectors, not for normal use
Obverse: The front of a coin. The image on the obverse usually consists of the principal design of the coin
Reverse: The back of a coin. The image on the reverse of a coin usually consists of a country's coat of arms or an insignia
Investing in precious metals can be overwhelming, especially when it comes to all of the different terms out there. However, taking the time to research what each term means will make the entire process less stressful, and it will give you a better understanding of the investment you're making.
Considering investing in precious metals? Download our free eBook, "The Beginner's Guide to Investing in Precious Metals"