Gold and silver investing gained popularity in the later aughts as real estate investing started to slow and investors looked for protection against inflation. Prices rose drastically during that time. Gold and silver became perceived as an investment and not just a vehicle for inflation protection or disaster preparation as it had been since the 1980s.
In times of uncertainty investors flee to the quality of gold and silver. There are several options for gold and silver investing, including the stock of miners like Goldcorp or Pan American Silver; exchange traded funds (ETFs) like SPDR Gold Trust; or in the metals themselves, whether as coins or bullion.
Educate yourself before investing. No matter the method of investing you choose, there are pitfalls that you need to avoid in order to protect your investment.
Danger #1: Unscrupulous Dealers
You’re checking out your favorite website when you run across an ad for gold and silver bullion at the spot price (the current market price) + 3%. That seems like an incredible deal. There’s no way you could get that price from a local dealer. A typical markup is from 5% to 8% above the spot price. The U.S. Mint marks up the price about 3% to cover its costs and sells to dealers. Dealers add their own markup, which is higher for smaller coins and can reach 10% or even 20% over the spot price.
So you call up the phone number in the ad and talk to the dealer. Now that dealer has your contact information and starts on the sales pitch, not for what you saw advertised, but for gold and silver collector coins which the dealer tells you are a much better value.
The dealer keeps calling you up day after day trying to get you to buy a product that the dealer will make a nice commission on but that’s likely not in your interest. Be very wary of dealers you find through banner ads that seem too good to be true. Make sure you are using a reputable gold and silver dealer. There’s nothing wrong with online dealers, but if you say to yourself I want to buy gold and silver near me then you’re likely going to be better served by a local dealer.
Danger #2: Forgetting That Gold and Silver Coin Prices Don’t Mimic Gold and Silver Bullion Prices
The price fluctuations of gold and silver coins doesn’t always match those of gold and silver bullion. Gold and silver coins are numismatic coins. Numismatic coins are collected and have a value above or below the base metals form which they’re made.
As the supply of and demand for a coin changes its price changes. In the case of gold and silver coins, usually there is a relation to the price of gold and silver. However, if a certain type of coin suddenly has its supply increased, the price may fall below of what you’d expect based on the price of the amount of metal in the coin.
For investment purposes gold and silver bullion or bars may be better investment vehicles than coins. Buy the coins if you like coin collecting, but not for investment purposes.
Danger #3: Not Understanding Paper Metal Investing
Paper metal investing means that the gold and silver is held by a third-party and the investor has limited or no access to the metals. This can be accomplished by buying stock in a gold or silver miner, buying an exchange traded fund or buying into an investing partnership. In these cases you don’t own the gold or silver itself - you own an interest in the party or company that owns the gold or silver.
If the third-party or company goes belly-up you may not have rights to the metals. Creditors may be paid off by selling the gold and silver and you’re left with a piece of paper that shows you’re entitled to ownership in the third-party - which no longer owns any gold or silver itself.If you want to hold and feel your gold and silver assets, physical metal investments are going to be a better option.
Danger #4: Not Realizing That Physical Gold and Silver Don’t Earn Anything
Physical gold and silver don’t earn anything. They are not a business or company that earns profits. They are not a piece of real estate that earns rent. Physical gold and silver prices are solely determined by the market - by supply and demand. There is no guarantee that the price of gold and silver will go up even if the overall economy is growing.
This may be so, but there are techniques you can employ to cash-flow your silver and gold at 12 to 26.4% per annum. These methods were developed by renowned wealth manager Minesh Bhindi, who shares them in this free webinar that you can sign up for here:
Danger #5: Damaging Gold and Silver
Pure gold and silver are soft metals. Typically gold and silver are alloyed with other metals to increase their durability. Gold and silver bullion that is 99.99% pure, and the pure coins produced by the Royal Canadian mint are soft and can be easily damaged if not handled correctly. You will find that gold and silver are carefully packaged to try to minimize the amount of handling needed.
Bonus Danger: No Place to Store Your Gold and Silver
So you’ve gone and bought physical gold and silver. Where are you going to store it? At home? In a safe deposit box at a bank? In a vault? Remember that there is a cost to secure and protect your physical gold and silver. You don’t want to just leave it lying around in your clothes drawers.