Critical Questions to Ask Before Making a Precious Metal Investment

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Written By Barry Lenson

There are low-risk investments you can make in precious metals and precious metal scrap. For example, you walk into an antique mall and buy a pair of old cufflinks for $50.00. You’re not sure whether they are made of 14K gold, 18K gold, or are just gold-plated. But you put your money on the counter and plan to learn more about the cufflinks later. After all, they cost you just a small amount of money. And if you turn out to double or triple your investment, then you’ll be happy. 

Then There Are Risky Investments

High-risk investments come in many varieties, and they carry different kinds of risks. One investment could be risky simply because it will cost you a lot of money. Another could be risky because its success hinges on a lot of “moving parts” or depends on your ability to liquidate some precious metal scrap or other material for a high price.

For example, let’s say that someone approaches you and says, “I need investors who will help me buy $500,000 worth of gold in Africa and import it to China, where I have a buyer who will pay twice that sum for it.” Well okay, maybe. But a million questions come to mind. Why does this other investor need you to partner with him in the deal? Does the gold really exist? What will it cost to import the gold to an African country? How are you going to be paid, and is the whole plan legal? Now, that’s a risky investment. 

So before you shoulder a high-risk investment, here are some questions to consider. It's important to gather as much information as possible to make an informed decision. 

Here are some essential questions to consider:

  • Do you know enough to reduce the risk and uncertainty? Moving outside your realm of expertise while investing a large amount of money – well, that’s risky.

  • What is the nature of the investment? Understand the specifics of the investment opportunity, including the underlying asset, market sector, business model, or financial instrument involved. Determine whether it aligns with your investment goals and risk tolerance.

  • What is the potential return on investment (ROI)? Assess the potential gains and evaluate if they are commensurate with the level of risk. Consider both short-term and long-term projections and compare them to alternative investment opportunities.

  • What are the specific risks involved? Identify and evaluate the potential risks associated with the investment. They include market volatility, regulatory changes, industry-specific risks, financial risks, and the potential for loss of capital. Assess the likelihood and potential impact of these risks.

  • Who are the parties involved? Evaluate the credibility, reputation, and track record of the individuals, companies, or institutions associated with the investment. Look for transparency, accountability, and a proven history of successful investment management.

  • What is the investment timeframe? Determine your investment horizon and whether the investment aligns with your timeframe. Some risky investments may require a long-term commitment, while others may be more suitable for short-term speculation.

  • What is the exit strategy? Understand how and when you can liquidate or exit the investment if needed. Assess the liquidity of the investment and any associated costs or restrictions involved in the exit process.

  • Have you sought professional advice? Consider consulting with financial advisors, investment professionals, or experts who can provide objective insights and guidance specific to your financial situation and investment goals.

Remember, these questions are meant to guide your due diligence process. It's crucial to conduct thorough research, consider multiple perspectives, and carefully evaluate the risks and rewards before making any investment decisions, particularly for risky investments.

When you are considering investing in precious metal scrap, be sure to call the precious metal refiners at Specialty Metals Smelters and Refiners, at 800-426-2344. We are here to help you evaluate the potential risk and profitability of any investment you are considering. 

Barry Lenson
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