Many investors are searching for strategies to prepare for looming uncertainties as we advance into a post-pandemic world. For some, purchasing precious metals like gold and silver can be the answer. Simply stated, precious metals offer protection from financial market volatility, unpredictable political outcomes, currency devaluation, and economic meltdowns.
Gold and silver are physically uncommon, have a distinctive chemical composition, and are easily malleable. Despite their potential for volatility, they have historically been excellent at long-term wealth storage. As you see in the chart above, Gold is starting to make a comeback.
Precious metals investments have various advantages over stock investments, including being an inflation hedge, having innate value, being free of credit risk, having a high rate of liquidity, adding diversification to a portfolio, and convenience of purchase.
Gold and silver can be purchased in various ways, including being purchased physically from firms like Gainesville Coins and others or as stock in mines that manufacture them. I have found that many local dealers are very competitive in prices.
There are several options to buying gold and silver. If you’re investing in these precious metals, keep reading to learn how you can get it done.
Purchase Physical Gold And Silver Coins
The quickest and easiest way to invest in gold and silver is to simply purchase tangible coins or bars. The physical method has the benefit of being the safest and simplest form of investment in gold and silver. It’s also the most emotionally and psychologically gratifying approach. You purchase some from a dependable supplier and keep it in a secure location. But it immediately becomes more complicated than that. How can you keep it secure and where should you store it?
It’s a good idea to have some gold and silver coins hidden somewhere in your home. It can serve as a great off-the-grid source of wealth. However, if you start accumulating significant amounts, keeping tangible gold and silver in your house becomes risky. Regular fees are associated with this, which deplete your investment.
Although it can be erratic along the way, historically, the price of gold and silver rises far more quickly than storage costs.
There are three major ways for you to store your physical gold and silver assets:
- Keeping Them In Your Possession: In this method, you officially assume personal custody of the bullion. You must keep it in a secure location where a fire or other tragedy won’t harm it. But to provide protection in the event of a loss, you might also wish to include a rider in your home insurance policy.
- Safekeeping At The Exchange Where You Purchased Your Bullion: Most online marketplaces now offer bullion storage. However, doing so will be expensive. Others who don’t offer storage facilities might make suggestions for trustworthy companies that do.
- Keeping Them In Individual Retirement Accounts (IRAs): You may be able to keep bullion coins in some self-directed IRAs. Finding an IRA custodian that specializes in the process is necessary because it’s a specialized procedure. Be advised that numismatic coins can’t be kept in an IRA account. A numismatic coin is one whose value or price is based less on its face value and more on factors such as the coin’s date, condition, historical significance, rarity value, aesthetic appeal, and mint mark.
Another major risk is when you have to sell your gold. Receiving the full economic value for your assets can be challenging, especially if they’re coins and you require cash immediately. Therefore, you might have to be content with selling your assets for far less than they’d normally fetch on the open market.
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Invest In Gold And Silver Exchange-Traded Funds (ETFs) And Options
Purchasing one or more exchange-traded funds (ETFs) is the simplest method of investing in gold and silver. The main benefit is that you could buy or trade them within your investment portfolio and that they’re incredibly liquid. This permits economical and hassle-free purchasing and selling and simple portfolio rebalancing. These have historically been somewhat pricey, but prices are decreasing. ETFs are generally becoming less expensive as they become more widely used.
If there’s a downside, they lack the same sense of ‘crisis insurance’ as gold and silver bullion. You don’t actually hold the majority of these ETFs in your hands, and most of them can’t be redeemed for gold or silver. So, you’re out of luck if there’s a doomsday scenario and the markets shut down. You can use the strategy of selling options on any more liquid ETFs to generate revenue from them. Below is a short outline of how to do that.
- Find an ETF that possesses the metal of your choice and has a liquid options market.
- Offer cash-secured put options on that ETF’s units with a strike price that’s lower than the spot price.
- Keep the earnings from the option premium. If the put options expire without being used, then resell the puts.
- Trade covered call options at a strike price higher than what you invested for the shares and higher than the spot price, provided the put options are exercised and you currently possess shares of the ETF.
- Keep selling covered calls until the options are eventually exercised and the units are sold.
- Restart by offering cash-secured put options for sale at a strike price less than the spot price.
This approach inevitably generates option money by continuously purchasing relatively low and selling relatively high. Depending on whether it’s a call or a put, whenever you offer an option on a stock or an ETF, you’re giving the buyer the right—but not the obligation—to purchase or trade the underlying shares at the specified price and within the specified period. And in return for it, the option buyer will pay you a deposit in cash upfront.
The two primary ETFs with actual silver holdings are Aberdeen Standard Physical Silver Shares ETF and iShares Silver Trust (SLV) (SIVR). iShares Gold Trust (IAU), SPDR Gold Shares (GLD), and Aberdeen Standard Physical Gold Shares ETF (SGOL) are three of the biggest gold ETFs.
Invest In Silver And Gold Mining Stocks
Some gold and silver investors choose to buy shares of mining companies. This is due to the fact that gold and silver mining stocks provide greater leverage than physical commodities. For instance, the value of gold mining stocks may grow by 45% or more if the price of bullion rises by 15%. This is a result of the higher profit margins that come along with rising bullion demand.
However, there are some issues with the stocks of gold and silver mining companies. They are equities, not bullion. In other words, purchasing gold and silver mining stocks isn’t the same as purchasing the metal itself. They’re impacted by all the economic factors affecting other businesses because they are gold mining companies. This covers governmental control, credit availability, interest rates, labor costs, and even trade-related issues.
Second, the majority of gold and silver mining occurs in volatile areas of the world. The local government has the power to shut down or usurp a gold mining company’s mines. Invasions or civil wars are other possibilities.
Third, mining businesses generally involve a lot of speculation. It can take years to turn proven reserves into profitable mines, and capital expenses are significant. In the interim, declining bullion prices might put mining businesses in a difficult position.
Gold and silver mining stocks shouldn’t be used as a substitute for bullion in your portfolio since they’re too risky and aren’t advised for the typical investor.
Invest In ETFs That Own Mining Stocks
You could utilize an ETF that owns silver and gold miners in case you don’t want to spend time researching miners but want the perks of having a mining firm. You’ll have more diversified access to miners than having only one mining stock.
ETFMG Prime Junior Silver Miners ETF (SILJ), Global X Silver Miners ETF (SIL), and iShares MSCI Global Silver Miners ETF (SLVP) are three ETFs that the ETF Database classifies as silver miners (SILJ). Meanwhile, iShares MSCI Global Gold Miners ETF, VanEck Vectors Gold Miners ETF (GDX), and VanEck Vectors Junior Gold Miners ETF (GDXJ) are some of the biggest funds in this industry (RING),
Although the diversified ETF will protect you against any individual company performing poorly, it won’t shield you from something that impacts the entire industry like persistently low gold prices. Moreover, remember when selecting your investment that no two funds are created equally. While some funds invest in senior miners who are less risky, others do so with junior miners.
Investing in precious metals isn’t for everyone. Some investors prefer to stick with betting on businesses with steady cash flows rather than hoping that someone else will overpay for the commodity.
If you are interested in following Gold prices, please check out our “Wall Street Cheat Sheet” where we discuss gold prices weekly.
However, now that you’re aware of the advantages of investing in gold and silver as well as the steps to do so, you should give adding a small holding of these metals to your portfolio some serious thought. Although they won’t offer the consistent returns that equities and interest-bearing assets do, they have a genuine chance to outperform those other assets.