There is something exciting about owning precious metals. Gold and silver have been standard forms of currency for a long time and they can provide protection against inflation. Their prices also tend to rise when the stock market falls and many financial advisors recommend owning gold or silver to diversify your investment portfolio. Just listen to successful investors like Warren Buffett on the importance of diversification. So it’s a good idea to learn how to invest in gold and silver to understand if it’s right for you.
There are several options when investing in gold or silver. Some directly, like owning bars, or indirectly, such as owning stock in a mining company.
Let’s look at the options in more detail:
Gold and Silver Bullion: While most people think of gold and silver bullion as bars, the term ‘bullion’ applies to any pure or nearly pure metal with a certified weight and purity. Smaller bars and coins are more practical for most people to sell quickly and easily.
Coins and smaller bars can usually be purchased from dealers for a 1-3% premium over the value of the gold or silver they contain. The values of coins are easy to determine in the financial marketplace.
Many investors like the physical nature of this asset rather than having it tied up in an investment product that could fail.
Be aware of insurance and storage costs. Research these fees when looking at the feasibility of investing in physical gold or silver.
Exchange Traded Funds: This is an easy way to own gold or silver since you don’t have to store or insure it. One share of an ETF is equivalent to a specific amount of gold or silver, frequently a fraction of an ounce. These shares can be bought and sold just like any other mutual fund share or stock share.
The annual expense of owning these shares is generally quite low, usually less than 0.5% annually. This is cheaper than that of most mutual funds.
Mutual Funds: There are many mutual funds that own gold or silver in some form, but there are relatively few that invest exclusively in a single metal. Most of these funds invest vertically in gold or silver-related businesses. This means they invest in gold or silver bullion, the mines and other related real estate, the mining companies, distribution and more.
Futures and Options: These provide a vehicle to bet on the future price of gold or silver. You can purchase the right to buy or sell gold or silver at a predetermined price within a predetermined span of time in the future. This type of investing in gold or silver can carry high risk and involve complex techniques, so be sure to research strategies before you commit.
Gold and Silver Mining Companies: Many gold and silver mining companies issue stock just like other publicly traded companies. These can be found on various stock exchanges. As with any stock, doing your homework on the business you’re considering investing in is vital. Not just the company itself but also any geo-political considerations relating to where it operates.
Keep in mind that there is always a surplus of gold and silver in the world. The actual commercial demand is very low relative to the supply. The value of gold and silver is almost entirely dependent on investor sentiment.
Jewellery: This is a difficult way to invest in gold and silver as the value of the jewellery is often much greater than the underlying value of the metal in the jewellery. Often the only person making money on gold or silver jewellery is the jewellery shop owner.
There are many options to invest in gold and silver. Bullion can make sense for larger investors with the ability to store and insure that gold. The average person that wants exposure to the price of gold or silver would be better served by owning shares in an ETF or suitable mutual fund.
Those with an aggressive stream can look into options and futures. Owning stock in gold or silver companies themselves is another possibility if you’re prepared to do some research. This may offer greater potential rewards but carries more risk.
Each of these options could work for you, depending on your personal circumstances and appetite for risk. If you want to invest in gold or silver, your best option is to choose the product that compliments your investment goals, but it’s always wise to seek professional advice first.