Financial Planning: A Midyear Guide 1987 : part five: Building Wealth : Volatile Metals Steal the Spotlight

Precious metals--gold, silver, platinum and palladium--are among today’s shiniest investments. Thanks to the weak dollar and fears of renewed inflation, silver gained 39.8% and gold 29.1% in the past year ended June 1, compared to 20.6% for stocks, according to the New York-based investment firm Salomon Bros.

But investing in metals is certainly no picnic. They earn no current income or dividends and may be difficult or expensive to sell. They also are very volatile in price, subject to the changing forces of supply and demand.

Here are the most common ways to test your mettle in metals:

Bullion coins. They are the easiest way to buy and sell smaller quantities of metals. The American Eagle, Canadian Maple Leaf, Australian Nugget, Chinese Panda and other investment-oriented gold coins can be bought at many coin shops, banks and dealers in sizes as small as one-tenth of an ounce, for premiums of between 4% and 8% of the prevailing price.

Major silver coins are the American Eagle, Mexican Libertad and silver trade units made by silver processors. But premiums on silver coins are particularly high, so it is usually better to buy bars if you are buying larger quantities such as 100 ounces, said Jeffrey A. Nichols, president of American Precious Metals Advisors, a New York investment advisory firm.

There also is a platinum coin, the Noble, minted by the Isle of Man.

When buying coins in California, try to buy more than a $1,000 worth at a time, said Barry S. Stuppler, president of the California Coin & Precious Metals Assn. Such purchases are exempt from state sales tax--a significant savings, he said.

Bars. They are a cheaper way to buy larger quantities because dealers charge smaller premiums than on coins. But they may be more difficult to buy and sell because fewer banks, brokerages and dealers trade in them than in coins, said Bruce Kaplan, senior vice president at A-Mark Precious Metals, a Beverly Hills wholesaler.

Also, buying larger bars can be a hassle. Unless you store them yourself, you will have to pay for storage, insurance and transportation costs.

Storage programs. They allow you to own bars or portions of bars, without the trouble of taking delivery or worrying about storage. Offered by banks and brokers, storage programs allow you to buy a specified amount of metal to be stored in major depositories such as the Bank of Delaware.

Some programs will give you monthly or quarterly statements of your account, similar to statements on savings accounts at banks. Others issue one-time certificates specifying your holdings.

Stocks of mining companies. Mining stocks are even more volatile than the price of metals because price rises or declines lead to sharp rises or falls in the profits of mining companies. If you want more diversification in your portfolio but want to leave the stock picking to experts, try gold mutual funds. They were the top-performing group of funds in this year’s first quarter, rising 49.4%, according to Lipper Analytical Securities.

Commodity futures and options. An extremely high-risk area for the amateur investor. “Unless you’re a professional or active in the market, chances are you’re just going to lose your money,” investment adviser Nichols said.