Introduction
Investing in gold and silver is a smart move to diversify your portfolio. This can safeguard you from inflation. Historial evidence has shown that these metals always maintain their value. Even when the market takes a dive, gold and silver can still be a reliable refuge for investors. Returns on these metals can be higher than standard investments.
In this guide, we'll cover the fundamentals of investing in gold and silver. We'll also look at the pros and cons, and address some frequently asked questions.
What are gold and silver?
Gold and silver are two of the world's most wanted precious metals. Gold is a yellow metal that is malleable and resists corrosion. Silver is a soft, white metal that tarnishes quickly when exposed to moisture or sulfur in the atmosphere. Both have been used for centuries for currency, decorations, jewelry, and industrial applications such as electrical contacts.
The price of gold and silver changes depending on market conditions. When demand is high or production costs rise, their price goes up. On the other hand, when supply is plentiful or the economy is in a downturn, their prices go down. This makes them suitable investments to diversify portfolios against inflationary currencies and equity markets, while also providing a hedge during deflationary times.
- Gold has been a currency since ancient civilizations began trading. As an investment today, it serves as a hedge against paper currency inflation and other debt-based investments such as stocks and bonds. Gold's value is consistent even when other values change.
- Silver's history is not as long as gold, nor is its stability during economic turmoil as strong. Nevertheless, it provides investors with another asset class to diversify their portfolios and protect their money from uncertainty in other markets like equities or real estate.
Advantages of Investing in Gold and Silver
Investing in gold and silver is becoming more popular every decade. These metals are great investments as their value endures over time, with potential for high returns. Although there are risks with any asset, gold and silver have been proven to be safe and stable investments.
Advantages of investing in these metals include:
- Long-term stability: Gold and silver have highs and lows, but historically their values have been consistent. This makes them a reliable choice for investors wanting predictable returns.
- Diversity: Investing in gold or silver helps diversify an investment portfolio. Both can offer protection against macroeconomic uncertainty.
- Portability & Liquidity: Gold and silver are easily transferrable since physical possession is not required to trade on the spot market. Funds can be accessed quickly if necessary. They can also be exchanged into other currencies with ease, making them highly liquid assets.
- Inflation Hedge & Political Protection: Precious metals are usually a store of value that can maintain purchasing power. They may also provide extra security against political unrest or currency devaluation as they have been used as a global currency standard for centuries.
Types of Gold and Silver Investments
Gold and silver? Yup, they're two of the most popular commodities for investing. Various methods exist for investing in these metals. You can buy physical bullion, or paper assets like ETFs.
Now, let's look at the different types of gold and silver investments. Plus, the pros and cons of each one.
Coins
Coin investing is when you buy coins that are one-ounce in size and feature various images, designs and commemorative releases. Gold coins usually keep their worth, while silver coins are valued more on their melt price. They are often made with fineness like .999 fine or 24-karat gold and have a face value in addition to their metal content.
Examples of coins include:
- Gold Coins: Krugerrand, Canadian Maple Leaf, American Eagle, British Sovereign.
- Silver Coins: American Silver Eagle, Canadian Silver Maple Leaf, British Britannia, Mexican Libertad.
Bars
Investing in precious metals, like gold and silver, is a great way to diversify. The most popular form of investing is through bullion coins produced by governments. But there are also bars with unique benefits. Generally, bars are cheaper and have better liquidity than coins. Here are some popular gold and silver bars for you to consider:
- Gold Bars:
- Kilo bar (32.15 troy ounces). It's large and expensive, best for bigger investors.
- 100-ounce or 10-ounce bars. These medium-sized bars offer great value. Most dealers accept these, and they can be used as collateral in certain financial instruments.
- Silver Bars:
- 100-oz bar. Easier storage than coins and better liquidity due to their size and weight.
- Kilogram bar (32.15 troyoz). Expensive but offers a great way to gain exposure to silver.
- 10 oz or 1 oz bars. Investors love them as they store large quantities of silver while still offering good liquidity.
ETFs and Mutual Funds
Exchange-traded funds (ETFs) and mutual funds are a neat way to own gold or silver. ETFs are traded on stock exchanges. They provide broad exposure to gold and silver instead of direct investments in the metals. Investors can buy and sell them on major stock exchanges like they would corporate stock.
A mutual fund is a portfolio of stocks, bonds, commodities, and currencies. An investment adviser manages it and decides which securities to include. If a fund focuses on gold or silver, it includes stocks of companies related to mining, exploration, production, jewelry, and precision parts.
- Gold ETFs follow the spot price of gold.
- Silver ETFs mirror changes in the spot price of silver.
Disadvantage: fees associated with buying shares can be big. But this cost can be lower than investing directly in each asset. Plus, these types of funds usually don't have storage costs like ownership directly in gold or silver bullion does.
Jewelry
Jewelry is an ancient and popular way to invest in gold and silver. It is an alloy, a mixture of metals like copper, nickel, zinc, and magnesium plus the precious metal. People find it attractive because it is both fashionable and valuable. However, it can be misplaced or stolen more easily than coins or bars.
Jewelry usually comes in 18-karat gold (75% pure) or 10-karat silver (42% pure). Investing in jewelry usually has higher premiums than coins, as craftsmanship and labor have gone into making the item.
Factors to Consider Before Investing
Gold and silver investing can be great for diversifying portfolios and lowering risk. Before you invest, consider the price, volatility, supply and demand, and external factors like economic and geopolitical events. This guide dives into all these factors to help you make a wise investment decision.
Risk tolerance
When picking investments for your portfolio, you should think about how much risk you can take. Gold and silver investing can be profitable, but risky. You must weigh up the possible reward against the potential risks. Consider your financial security and how the markets are doing when it comes to gold and silver investing.
Gold has been valued for a long time and is seen as a safe place to invest. Though, sudden market changes or geopolitical problems could lead to heavy losses if you take on too much risk.
You should also consider issues with bullion investing such as:
- Liquidity
- Transaction costs
- Storage costs
- Taxes
- With physical gold, theft risk
Bullion is a physical item, so it will have storage expenses, unlike liquid investments. If you buy physical bars or coins instead of gold ETFs, be prepared to pay full value for the transaction.
Your risk tolerance will decide if investing in gold or silver is for you. If you want security but can handle moderate risk, gold may be part of your strategy. If you want higher returns and more volatile investments, silver might be better because of its higher volatility during economic difficulties.
Investment goals
Before investing in gold or silver, it's essential to understand your investment objectives. Are you seeking short-term growth? Or long-term wealth? Do you want to speculate on price? Or are you simply hedging against inflation? Knowing your goals ahead of time helps you tailor your investment approach.
Generally, investors find gold and silver attractive due to:
- Wealth Preservation: Precious metals are a great way to store and safeguard wealth over long periods. This is especially true when traditional investments become unstable due to economic changes or geopolitical events.
- Speculation: Gold and silver have erratic prices over brief periods, making them attractive potential “get-rich-quick” commodities.
- Inflation Hedge: Over the long-term, both gold and silver tend to increase with inflation. By holding either as a hedge against rising prices of goods, investors can protect their portfolios from market risks.
When selecting which type of metal (gold vs silver) is right for your portfolio, consider the following:
- Price Volatility: Historically, gold is more volatile than silver; offering higher returns in a shorter time but also carrying more risk.
- Investment Strategies: Different strategies suit one type of metal or another; for example, long-term strategies often benefit from gold, while traders may find greater success with silver.
- Liquidity/Repurchase Agreement: Not all precious metals investments are easy to liquidate – particularly in large quantities. It can be beneficial to invest through companies with repurchase agreements, allowing investors to buy back their purchased metals at the market value anytime without questions.
Time frame
It's important to take into account the time frame you plan to invest for before investing in gold or silver. If it's a long-term investment of five years or more, gold or silver may be better. On the other hand, stocks and funds may be more suitable for medium or short term investments.
Those investing long-term in gold should think about the opportunity cost of not investing in other assets like stocks and bonds, as these typically provide a higher return in the end.
For shorter investments, remember to think about inflation which can lessen your portfolio's purchasing power if you keep it too long.
Finally, be aware of external factors like politics, environmental disasters, and supply/demand trends which can affect the value of gold and silver.
Determining the Price of Gold and Silver
Determining the cost of gold and silver when investing is crucial. The price per ounce, and other aspects such as demand and supply, economic conditions, national currencies, and geopolitical situations, can all affect the purchasing and selling of gold and silver.
In this guide, we'll explain how to work out the price of gold and silver when investing, and the factors that can influence it:
Spot price
Spot price is the present market value of gold or silver. It's the basis for buying, selling or dealing with those commodities. It can be expressed in different currencies, like Dollars, Euros, Pounds Sterling, Yen etc. Also as US Dollars per Troy ounce for precious metals like gold and silver. Prices may differ depending on commissions and other charges from dealer to dealer.
It's essential to know that spot prices are set globally based on the demand and supply among buyers, dealers, and producers. They can be unsteady due to political uncertainties or when supply and demand don't match. Spot prices can also change with the season, such as jewelry demand before a festive season.
Factors which can modify the spot price of precious metals:
- Geographies/markets they're traded in
- Trading volume on various exchanges
- Technological advancements
- Economic indicators such as inflation rates
- Benchmark indices to compare to the global average value
- Supply/demand ratios due to season
- Availability from world inventories
- Central bank actions around the globe, etc.
Premiums
Before you buy gold or silver investments, it's important to understand the precious metals markets. Prices depend on spot market prices, production costs, availability and premiums.
Premiums are the percentage points added to an ounce of metal's spot price. Where you buy investments from can cause premiums to range from 0% to 10%. Coins with higher numismatic collectible values usually have higher premiums, due to their demand.
Different factors affect premiums:
- Mint premiums – Some coins like American Eagles tend to be more expensive due to demand, as well as minting costs.
- Shipping and handling – Merchants may mark up the cost of shipping and handling to cover expenses. This can cause higher premiums.
- Supply & demand – Rarity will affect premium prices. When an item is rare, its premium price increases since it is harder to purchase. Items with greater availability usually have lower premiums than scarce items.
Spreads
When dealing with gold and silver prices, understanding spreads is a must. Spreading is the main factor that sets the difference between buying and selling prices. When markets are steady, the spread is usually small. But when markets become very volatile, spreads become wider. In some cases, when buyers trade large amounts, spreads can even go negative – meaning you get a refund for each transaction!
Online bullion traders need to understand what spreads consist of in order to make the most money. Spreads include a broker's commission, market makers' fees, and other charges from exchanges. Also, keep in mind that some services are for different types of customers – beginners pay more than experienced dealers. For example, beginner traders may pay more per ounce due to extra tutorial emails or phone advice.
It's essential to know spreads in different markets to make smart investments. By researching the different options and knowing what investors are looking for, you can maximize your profits and minimize your costs!
Where to Buy Gold and Silver
Gold and silver are valuable, so investing in them is a smart move. It might protect you from inflation. In this guide, we will look at gold, silver, and where to buy them. This is essential for getting a good deal and staying safe. Let's get into it!
Online dealers
Shop online for convenience! It takes less time and you can compare prices. But, make sure to research any dealer before buying gold and silver. Look for certification from the American Numismatic Association or similar. Check reviews and complaints too.
On Gold Silver World Coins USA, you can shop from 1000 global mints. Bullion Vault has a huge selection. JM Bullion offers bullion coins and rounds. Plus storage services. Apmex has exclusive products like the 25th anniversary gold Eagles set.
Local dealers
Buying gold and silver is a popular choice for investing. But, it's hard to know where to start. One of the best places to buy from is local dealers or coin shops. They offer bullion coins, collectible coins, and other precious metals products.
When selecting a dealer, do your research and check their credentials. The staff should know about valuable coins and provide info about the type of dealers they are certified by. Also, ask for an inspection period so you can check the quality before buying.
Common items from local dealers are:
- Bullion bars/rounds
- Government minted coins
- Collectible coins
- Numismatic items
- Jewelry
- Other metals like palladium/platinum
Check if there are any sales taxes in your area.
Take extra precautions when buying from in-person outlets like flea markets. It's harder to verify than websites or online stores. You can't return items or see ratings from customers. But, reputable dealers usually offer warranties. Make sure any issues with the acquisition process are discussed before buying.
Auctions
Auctions provide great deals for knowledge buyers of gold and silver. Bids are made by multiple buyers, with the highest bidder receiving the goods. Live auctions or online auctions may be hosted, depending on the items.
At a live auction, research current prices and mintages, as well as how long you plan to bid for each item. If purchasing online, submit the maximum bid quantity in advance. Auctions can offer competitive rates for gold and silver. Research before bidding and look for any extra fees, such as buyer's premiums, that may be charged.
Storing Gold and Silver
Investing in gold and silver? You'll need to pick where you store it. Options are out there for you, but each has good and bad points. Let's take a look! Here, we'll cover the ways to store gold and silver, plus the pros and cons. Plus, we'll give you the best picks for long-term storage.
Home storage
Collectors and investors alike must store gold and silver securely. Many people use a bank's safety deposit box. But, home storage has different security than a bank. High-grade locks with electronic or combination systems are a great way to protect your metals from theft. Building your own vault is even better, with multiple layers of locks, motion detectors, and video surveillance.
For smaller amounts, like coins or jewelry, store them in a hidden safe with two-step access codes. Document where and how you stored your investment, so it can be located quickly if something happens.
Follow these steps and your efforts in collecting gold and silver will pay off:
- Use a bank's safety deposit box.
- Install high-grade locks with electronic or combination systems.
- Build your own vault with multiple layers of locks, motion detectors, and video surveillance.
- Store smaller amounts, like coins or jewelry, in a hidden safe with two-step access codes.
- Document where and how you stored your investment.
Bank deposit boxes
Bank deposit boxes can be a great way to store gold and silver. Make sure to check with the bank about policies and procedures to access the box. Banks charge an extra fee too. So factor that into your decision.
Risks come with using safe deposit boxes. Banks have comprehensive security measures, but theft and loss can happen. Some banks don't have insurance for contents in the box. So it can be vulnerable to burglary and disasters. Check if your possessions are covered.
Government agencies could also confiscate assets stored in a safe deposit box. This could happen with tax collection orders or civil judgments. Investigate laws surrounding seized assets before selecting this form of storage.
Third-party storage companies
Third-party storage companies give investors an option for storing gold and silver coins and bars securely. These companies provide insured vaults with advanced alarm systems. They often have multiple locations worldwide for clients' convenience, when it's time to sell or liquidate investments.
Before you choose a third-party storage company, it's important to understand how the company works, and what the cost of storing your coins or bars will be. Prices differ depending on the security measures and location. Some facilities offer pickup/delivery services, while others may only allow visitors by appointment. Make sure to research all the options before deciding which company is right for your needs.