How to Build a Precious Metals Portfolio From Scratch

The world of precious metals can be daunting for beginners, but we’ve covered everything you need to know in this article. Keep reading to learn:

• Why precious metals are a good investment
• Basic precious metals terminology
• The difference between gold and silver investments
• How to choose between bullion bars and coins
• How to buy precious metals step-by-step
• Common mistakes to avoid.

Note: This article will focus strictly on physical precious metals investments and not precious metals exchange-traded funds (ETFs).

What are precious metals?

Precious metals are naturally occurring metals with high economic value, prized for their rarity and role as a store of wealth. There are four main precious metals used in investing: gold, silver, platinum, and palladium.

• Gold: The most popular investment metal, known for its stability. Gold has a long history of retaining its value and is less influenced by industrial cycles than other metals.
• Silver: A more affordable entry point for new investors. Silver is valued as both an investment metal and an industrial metal.
• Platinum: Rarer than both gold and silver, platinum is heavily used in the automotive industry and high-end jewellery.
• Palladium: Rarer than platinum, this silvery-white metal is prized for its industrial use and corrosion resistance.

Why invest in precious metals?

Investing in precious metals offers tangible, non-correlated diversification to traditional portfolios of stocks and bonds. Here’s why investors choose precious metals:

Hedge against inflation

Precious metals, especially gold, have historically maintained their purchasing power even when the value of fiat currency drops. When the cost of living rises, gold’s price often increases to compensate.

Read More: Exploring the Role of Gold as an Effective Hedge Against Inflation

Stability during uncertainty

Precious metals are widely considered a safe-haven asset. This means that investors often shift their capital to metals during periods of geopolitical tension, financial crisis, or extreme market volatility. Because physical metals exist outside the financial system, they don't rely on any bank or government to maintain their value.

Portfolio diversification

Precious metals often have a low or negative correlation with stocks. This means that when the stock market struggles, precious metals often stay stable or even rise in value, helping balance out your overall returns.

Basic precious metals investing terminology

Spot price

The spot price is the current wholesale market price for immediate delivery of a raw precious metal. You can think of it like a stock ticker – it’s constantly updating throughout the day based on global supply and demand.

Premium

The premium is the additional amount you pay above the spot price when buying precious metals. This covers the costs of refining and manufacturing, shipping, insurance, dealer markups, and so on.

It’s important to understand how to calculate the premium percentage, as this allows you to compare prices between different dealers and products. Here’s how to do it:

Premium % = (Purchase Price - Spot Price)Spot Price x 100

For example, if a 1 oz Gold Britannia Coin is priced at £3,500 and the current spot price of gold is £3,400, the premium percentage would be 2.94%.

Purity (fineness)

Purity refers to the actual precious metal content within a coin or bar. It’s usually expressed in parts per thousand (e.g. .999) or karats for gold (e.g. 24k). Bullion products are required to meet certain purity standards to be considered investment-grade:

• Gold: Typically 99.5% (995 fineness), although most bullion bars and coins are refined to 99.9% or 99.99% (24-karat) purity. That said, some of the most popular gold coins are 91.67% purity (e.g. the American Gold Eagle and Gold Krugerrand).
• Silver: Generally requires a purity of .999 fine (99.9% pure) or higher, often referred to as 'three nines fine'.
• Platinum: Requires a minimum purity of 99.95% (.9995 or 'three nines five').
• Palladium: Requires a purity of 99.95% (999.5 fine) or higher.

Investing in gold vs silver

Although there are four main precious metals, we recommend focusing on just gold and silver when you’re starting out. Each of these two metals plays a different role in your portfolio.

Gold: Stability and wealth preservation

There's a reason why physical gold is the most popular investment metal. It's been a store of value for more than 5,000 years, with a demonstrated history of acting as a hedge against inflation and economic uncertainty. Gold is the precious metal of choice if you're looking for stability, wealth preservation, and portfolio diversification.

Here’s why gold is a great choice to start with:

• Its density means you can fit a high-value amount of gold in a relatively small space
• It’s universally recognised and highly liquid, making resale easy
• It’s a stable metal with lower volatility compared to silver.

Silver: Accessibility and growth potential

Silver is popular for being more affordable than gold while still offering many of the same benefits. Unlike gold, however, most silver demand comes from industrial uses. This can make it more exposed to economic cycles. Silver is also much more volatile than gold, offering opportunities for higher returns but also introducing slightly more risk.

Here’s why silver is a popular investment:

• It’s affordable, making it easy to build a position through small, regular purchases
• Its industrial demand supports long-term fundamentals
• Its higher volatility offers higher potential for growth.

Gold vs silver comparison table

The table below summarises the main differences between gold and silver investments:

	GOLD	SILVER
ENTRY POINT	Higher, (currently trading at £3,400+ per oz)	Lower (currently trading at around £57 per oz)
PRIMARY USE	Investment and jewellery	Industrial and investment
VOLATILITY	Lower, more stable	Higher, more price swings
STORAGE	Very compact	Requires more space for the same value
BEST FOR	Wealth preservation	Growth potential, affordability

Choosing between bullion bars vs coins

Once you’ve decided which metal to buy, you can decide what form you’d like to invest in. You can buy physical bullion in two main formats: bars and coins.

Bullion bars

Bars are refined metal products produced by private or government mints. They’re designed purely for investment and valued almost entirely on their weight and purity. You can buy bullion bars in a wide range of sizes, from small 1 gram gold bars to larger 1 kg gold bars.

Smaller bullion bars are minted, meaning they’re made by machine and have a smooth, polished finish and a uniform shape. Larger bars tend to be cast, made by pouring molten metal into moulds. This gives them a raw, uneven appearance.

The main benefit of buying bullion bars is that they typically carry lower premiums compared to coins, making them more cost efficient. This means you’ll get more metal for the same amount of money. However, they can be slightly harder to resell compared to coins.

See More: What Are the Best Gold Bars to Buy?

Bullion coins

Bullion coins are issued by government mints and considered legal tender. They carry a face value (for example, a 1 oz Gold Britannia has a value of £100), although their actual value is based on the gold content.

The standard size for bullion coins is one troy ounce, however you can also buy them in smaller sizes (e.g. 1/10 oz, 1/20 oz) or larger sizes (e.g. 2 oz). Some of the most popular bullion coins are the Canadian Maple Leaf, American Eagle, and South African Krugerrand.

Coins are more expensive to produce than bars, mostly due to their intricate designs. This means you’ll pay a slightly higher premium above the spot price. However, they are highly liquid with strong global recognition.

Keep Reading: What are the Best Gold Coins to Buy and Why? From Krugerrands to Maple Leafs.

How to buy precious metals, step by step

Step 1: Establish your budget and goals

Before you start looking at coins or bars, think about why you’re investing in precious metals in the first place. Are you looking for long-term wealth preservation (gold) or higher growth potential (silver)?

Most experts suggest allocating 5% to 10% of your total investment portfolio to precious metals. If you’re just starting out, you may want to consider an initial commitment of about £500 - £1,000 to get a feel for the market.

Before you buy, ask yourself:

• Do you have an emergency fund with 3-6 months of living expenses in cash?
• Are you prepared to hold your metals for at least 3 to 5 years?
• Are you comfortable seeing 10-20% price swings in a single year?
• Have you checked if your home insurance covers physical bullion products?

Step 2: Choose your products

For your first purchase, we recommend sticking to globally recognised, highly liquid bullion products. This ensures that you’ll find a buyer instantly when it’s time to sell.

For gold, we recommend:

• Gold Britannia (CGT-free in the UK)
• Gold Sovereign (CGT-free in the UK)
• 1g gold bars (if cost-efficiency is your goal).

For silver, we recommend:

• Silver Britannia (CGT-free in the UK)
• 500g silver bars (if cost-efficiency is your goal).

In the UK, all investment-grade gold is VAT-free and certain coins are also exempt from capital gains tax (CGT). Learn More: Gold Bullion Coins & Capital Gains Tax.

Step 3: Find a trustworthy dealer

It’s essential that you choose a reputable dealer with a proven track record of authenticity and reliability. Some things to look out for include:

• Transparent pricing: You should see the live spot price and premium clearly listed when browsing
• Buy-back policy: Most trusted dealers will offer to buy the metal back from you in the future, when you’re ready to sell
• Secure shipping: Your order should be discreetly packaged and fully insured to your door
• Verified reviews: Look for positive customer reviews on third party websites.

The gold standard in precious metals dealers are those that are members of the London Bullion Market Association (LBMA).

Step 4: Consider storage

You should have a clear storage plan in place before your metals arrive. There are three main options:

1. Home safe: Best for small collections, offering the most access to your metals but with moderate security
2. Bank safety box: Good for mid-sized collections, offers high security but with limited access
3. Professional vault: Best for large portfolios, fully insured and managed storage with maximum security.

See: What is the Proper Way to Store Gold?

Common mistakes when buying precious metals

Some common mistakes precious metals investors make include:

1. Buying too much too fast: It’s common to get excited about your new investment and over commit to some big purchases. It’s best to start small and slowly build your position over time rather than sinking all your capital only to see the market dip the following week.
2. Falling for deals that are too good to be true: If you spot a price that’s significantly below the rest, it may be a scam or counterfeit. Stick to established, trustworthy dealers to make sure what you’re buying is authentic.
3. Ignoring storage costs: Make sure to factor in storage costs. If you’re paying £200 a year to store £500 worth of silver, it may not be worth it.
4. Buying collectibles first: Rare and limited edition coins might be exciting, but they’re not ideal for beginners. Start with standard bullion coins and bars before you start going for rarer ones.

Example precious metals portfolios

Now, let’s look at some example portfolios to give you an idea of precious metals allocations:

• Conservative (80% gold / 20% silver): Ideal if your focus is wealth preservation and stability
• Balanced (60% gold / 40% silver): Suitable for investors who want a balance between conservatism and growth
• Growth-oriented (40% gold / 60% silver): Ideal if you can handle silver’s higher price volatility in exchange for potentially higher returns.

Beginner precious metals investor checklist

Before you set out to make your first order, let’s go through a final checklist:

• Research: Have you checked today’s spot price?
• Budget: Are you allocating 5-10% of your investable assets (not emergency cash)?
• Product: Are you buying a popular, recognisable coin or bar?
• Dealer: Have you compared premiums across at least two reputable dealers?
• Storage: Do you have safe storage ready to go?

Start investing in precious metals

That’s it, you’re ready to go! This article has covered all the basic essentials you need to know to start building a precious metals portfolio from scratch. It’s time to set out and make your first purchase – and you’re already in the right place.

StoneXBullion is the UK and Europe’s leading precious metals dealer, offering fully insured, discreet delivery to your door. We’re a proud member of the LBMA and sell only from the most trusted mints and refineries, providing peace of mind and guaranteed authenticity.

Browse our selection of gold and silver bullion coins and bars and start building your portfolio today.