Making an investment in gold and silver has some nuances that are not experienced when making other types of investments, like stocks, bonds or real estates. While supply and demand ultimately drive investing in gold and silver, by being physical commodities with non-investment value, gold and silver behave differently than paper investments. Before plunging your dollars (and we do mean dollars as gold and silver is usually priced in dollars) into a gold or silver investment, take the time to do your due diligence to ensure you understand the risks and potential rewards.
Ask Yourself - Why Consider Silver and Gold as an Investment?
The first thing to understand in your investing strategy is why you are investing in the first place. Because gold and silver is shiny is not a good answer. Neither is because your friends are doing it, or because you briefly heard about it on TV.
The reason to invest in gold and silver is because you have done your homework and think prices are going to go up, earning a return. Price increases can be caused by a number of things. Gold and silver supplies could decrease because of less gold being mined or issues in the gold and silver supply chain. Monetary inflation caused by excess money supplies can drive up the prices. Gold and silver are hedges against inflation as they hold their absolute value and have their prices inflate along with the money supply. Gold and silver are harbors in an investment storm. During times of uncertainty or crisis people tend to invest in safer investments and hard investments, a flight to quality.
Learn About Gold and Silver Investment Risks
You must also be equipped to handle the risks of investing in gold and silver. The price of gold and silver might not go up in a hockey stick shape, or the price could decline. You have to be able to take the risk of losing money on your investment. Think about that for a minute. Before undertaking any investment make sure you’re financially and emotionally able to handle a loss on that investment.
Once you’ve answered the question of why you need to answer a followup question.
Is Physical Gold and Silver a Good Investment?
When calculating if gold and silver is a good investment you must have an investment horizon in mind. How long are you going to hold onto your gold and silver investment? A day? A year? 5 years? Forever? There are going to be price fluctuations no matter what time frame you’re looking at.
You must decide for yourself the time frame of your investment. Others can advise you but only you can make the final determination. Now, you may change your time frame after you’ve made your investment, and you probably should as you get new data, but you need to start with an end in mind.
With your time frame in mind you must evaluate factors that will affect gold and silver prices over that time. What’s the macroeconomic situation and how’s it shaping up. What are growth rates like? Is a recession likely? What’s the inflation forecast?
Factors Affecting Gold and Silver Coins Investments
How is the commodities market in general? Gold and silver exist in their own market but also in the larger commodities market. What’s the demand for gold likely to be? How much new supply or mining is happening? Is there a new source of demand coming soon? Is gold and silver becoming more or less popular in jewelry?
You can see that there are a lot of factors that can affect the price of gold and silver. You don’t need to act like a trader and install a Bloomberg terminal to keep up on commodity news (although if that’s your cup of tea go ahead), but you do need to do homework every week to stay on top of your investments.
You will want to have an idea of the price direction of gold and silver. They may be a poor short term investment but a year from now be good buys. Or they might be good investments for the next 6 months but projected interest rate changes by then could make them bad investments. Always keep your investment time frames in mind.
Also compare your investment to what you could earn in other investments, your opportunity costs. Earning a theoretical 15% return in gold and silver in 3 months could be great, until you factor in that the theoretical return of the S&P 500 is 25%. Keep the risk and return and relative return in mind.
Before we wrap up this discussion, let’s go over asset diversification. Diversifying your investment portfolio is another reason to buy gold and silver, even if you don’t think they gold and silver prices are on a rocket ship to the moon. If you own stocks, municipal bonds, real estate, paper mills, businesses or any of a number of other things and have a high concentration of your wealth in those, you need to diversify. Diversification is a risk management strategy. Gold and silver are good diversification vehicles, for many of the reasons we’ve mentioned - and primarily as an inflation hedge. You can’t be certain of your investment returns, so diversification is always going to be in style.
What Is The Best Way to Invest in Gold and Silver?
Upon coming to the conclusion that you want to invest in gold and silver, you find yourself asking what’s the best way to do that. There is no one-size fits all way to invest. There are many different methods of investment. Let’s talk about the different choices that are available to you.
No Fuss Gold and Silver Stocks
For an easy way to invest in a gold and silver stock buy the stock of a miner. Gold and silver mining stocks are correlated to the price of gold and silver so they’re a great way to get exposure to gold and silver without having to buy physical metals.
Miners stock prices are chiefly affected by gold and silver prices. But that’s not they’re only price drivers - profits and growth are what ultimately set their prices. The amount of gold and silver they mine is the main revenue driver. Mine more gold and silver and revenues generally increase, less and revenues decrease. More mining is accomplished by increasing production at existing mines, buying mines from another party, or finding gold at a brand new mine. Be aware that fewer and fewer new gold strikes are found every year.
Costs are the other side of the profit equation. Miners costs include employees or labor, land on which to mine and equipment. Mining equipment runs on gas and diesel, so when the price of oil increases the miners costs go up.
There are dozens and dozens of miners to invest in. A few for you to research are Barrick Gold, Newmont Mining, Goldcorp, Agnico-Eagle Mines, AngloGold Ashanti, Silver Wheaton, Pan American Silver and McEwen Mining. But there are so many more than this so go do some reading. You’ll probably want to stick to the American, Canadian and British miners as they’re traded on exchanges that provide the most liquidity.
Besides the miners, there are other companies in the gold and silver supply chain you can find to invest in their stocks. Once the gold or silver is mined and turned into doré bars by the mining company, a transportation company moves the gold or silver to a refining company for refining. Then the refined gold or silver is moved to a bullion bank for eventual sale to whomever is going to use the gold. These middlemen are possibilities for investment too.
Pools of Gold and Silver
Another option for owning gold and silver is to invest in a pool of gold or silver. An exchange traded fund (ETF) is a popular way to buy into such a pool. The largest and perhaps best known of the gold ETFs is the SPDR Gold Shares ETF from State Street Advisors. The iShares Silver ETF from BlackRock is a popular silver ETF. Gold and silver ETFs try to hold physical gold and silver in their trusts. You get maximum exposure to gold and silver prices without having to own and store physical metals.
Physical Metals - Where to Buy Gold and Silver
Yet another option is to own physical bullion or coins. While stocks and ETFs are easy to buy and sell in a market, physical gold and silver is a bit more cumbersome. It’s not necessarily harder, but there is preparation you must do to find a dealer and have a secure place to store the precious metals.
One advantage of owning physical metals is just that, you own a physical thing. Your gold or silver is tangible. It can be sold out in the real world. Try bargaining with someone by telling them you’ll pay them with shares of stock. Companies don’t even issue physical paper shares anymore, it’s just an entry in an electronic ledger at your broker. Last we checked you can't buy stuff with electrons, except in World of Warcraft. So in an emergency, where there’s no power or water or ATMs, it might be worth it to have a couple of gold and silver coins to barter with. Even without this grim scenario it’s cool to have some pretty shiny precious coins to hold on to.
Where Is the Best Place to Buy Gold and Silver
The best place to buy gold and silver is through a dealer. You can find dealers through recommendations from family, friends, financial advisors, teammates on your company softball team, barbers, neighbors… You get the picture.
You want to find the best gold and silver dealers. That’s going to be a process. Gold and silver dealer reviews need to be scrutinized. We can’t stress enough the need for you to do your due diligence on a dealer. There are a lot of great dealers in the gold and silver industry, but as with any marketplace there are going to be some bad apples. Do your homework to make sure you’re getting the best price.
Gold and silver bullion bars are going to be the easiest to value and resell. There are standards for bullion bars that makes pricing them easy and makes it easy for you as a buyer or seller to know what you’re getting.
Gold and silver coins are a slightly different animal, as they have numismatic value as coins, which can be above and beyond their constituent metal. Collectability comes into play with gold and silver coins. Rarer gold and silver coins are going to be worth more, even if they have the exact same gold and silver content as more common coins. Take the American Eagle Bullion Coin for example. Since it began being minted in 1986, yearly mint runs have ranged from over a million coins down to just over one hundred forty thousand coins. That’s a huge range.
American Eagle and Canadian Maple Leaf coins are popular. American Eagles can even be placed into American Individual Retirement Accounts (IRAs). The American Eagle’s gold content is guaranteed by the U.S. Mint which may be important to you.
The Australian Nugget and Chinese Panda change their designs every year minted. South African Krugerrands have had interesting designs. And for music lovers, the Austrian Mint’s coin has a beautiful design inspired by the Vienna Philharmonic, and coin bears that entity’s name.
We’ve given you a lot to think about as you work out your gold and silver investment strategy. Use the resources of this site to help you do your homework. Understanding how to invest is your paramount responsibility. Don’t let others say they’ll do it for you. You are responsible for your investments.
Keep an eye on global macroeconomic and political developments. Those developments tend to move the gold and silver markets. But keep your investment thesis in mind and don’t get caught up in day to day movements. This is investing, not trading. Feel free to read up on trading if that’s what you’re interested in. But always be ready to change your strategy is the situation warrants. Gold and silver can be great for hedging and diversification, but always be evaluating where they fit in your portfolio.
What's next after you acquire your precious metals? How do you make this investment grow? Minesh Bhindi from Gold and Silver for Life offers a free seminar on how to cash-flow your gold and silver so that they earn you up to 26.4% annually. His methods and techniques do work, and have helped thousands of people worldwide.