Precious metals are an interesting intersection of markets, demand, and investment forms. For both new and experienced investors, the task of understanding and predicting when to buy and sell challenges many.
We offer these six quick tips to help you smartly decide how to invest in silver and gold.
1. Understand the where the market lives.
The majority of demand for gold comes from jewelry makers, who make up about half of the industry. Another 40% comes from the direct physical investment in gold, which includes pressing gold into coins, medals, and gold bars. Each of these creates the initial demand for gold, which is then met by a network of investors owning the physical product.
Similarly, silver is coveted by investment and industrial companies and allows holders to store value with very low interest rates. That being said, the metal is still about 1.5 times more volatile than gold, and prices recently fell due to concerns over the global economy falling into a recession.
2. Know what forms of gold and silver cost.
You may already be a gold investor without realizing it. Gold jewelry counts as a material investment, but anything below 24 karats is likely to lose its value as time goes on. In addition, this value is largely tied to the piece being a collector’s item, and it is not a reliable placeholder in the larger market.
Instead, consider buying gold bullion, bars, or coins. Keep in mind that the price of pressing the raw material into these shapes will be factored into the cost. In addition, the price of storing the materials in a deposit box can rack up your budget, and, ultimately, selling them will mean physically bringing the materials to a dealer.
Silver has been traditionally traded in the form of coins or bars, but first time investors may also look into buying bags of junk silver. These include pre-1965 currency such as mercury dimes, but are guaranteed to include at least 90% silver.
Owners can then also sell off individual pieces, or melt it down for an average of 715 ounces of pure silver per bag. Today bullion coins are also available, and the most popular are the 1-ounce Silver American Eagle and 1-ounce Canadian Maple Leaf. Both have consistent premiums.
3. Analyze when and where to buy silver and gold.
For beginners, the U.S. Mint is typically a good starting point because you know you’re dealing with a trustworthy dealer. Otherwise, if you’re searching for an individual dealer make sure they are a member of groups like the Industry Council for Tangible Assets or Professional Numismatists Guild.
Before selling silver, monitor the price on The London Silver Fix which is updated twice daily and compares offers from several dealers to find a reliable base price.
For buying physical gold online, consider purchasing with a company that offers a buy-and-store program with non-bank London Bullion Market Association-approved vaults. This will offset the cost of storing your gold yourself, and make it much easier to sell your metals in the future.
Before you buy, you can monitor the day-to-day spot price (which is simply the price you’ll pay if you purchase “on the spot”) on the website of the World Gold Council. Understand that while gold’s value is largely shaped by supply and demand, it has risen in the past at the same time the S&P 500 fell. Investors hurried to put their money into material-backed, safe-haven investments.
4. Consider exchange funds.
If you want to invest in the gold and silver market without the hassle of owning the physical material, you may consider exchange-traded funds.
ETFs operate on behalf of their shareholders, and purchase a large amount of metal corresponding to the money backed by investors. These companies will often charge a commission when you want to trade your shares, as well as a management fee often close to .40%.
For a reliable gold ETF, consider SPDR Gold Shares. Likewise, one of the largest silver ETFs is iShares Silver Trust whose assets are valued at about $8 billion. Another great thing about them is that iShares allows investors to redeem their shares for physical silver.
5. Explore mining stocks as an alternative.
If you’re looking for an investment with more potential for growth you might look into mining stocks. The prices of these stocks usually corresponds to the spot price of physical gold or silver, but they can also grow as production increases.
For gold mining stocks, think of Barrick Gold, Kirkland Lake Gold, or SSR Mining who focus primarily on increasing productivity while monitoring cost efficiency. For purely silver miners, look into Pan American Silver Corp., Fresnillo, and MAG Silver Corp.
Cost efficiency and production are huge factors in mining stocks. While they can lead to a greater gain than just physical gold, they also allow for a more volatile fall in asset value. Issues like striking workers, mine collapse or simply weakened production can all effect your investment, making this a riskier option than buying bullion.
Conversely, weakened production can also be a sign of mines producing different precious and semiprecious metals than the ones you’re interested in. If you’re looking to diversify your portfolio, this could be a blessing, but you should research every mining stock you’re considering by looking into their costs, existing portfolio, and room for expansion.
6. Invest regularly and in increments.
For the last ten years precious metal prices have risen, and it’s projected that they will continue to do so. It’s best to invest by buying small amounts of metals over time, and attempting to dollar-cost average.
Committing to purchasing a small amount every few weeks, you’ll grow your portfolio over time and end up buying more shares when prices are low, and fewer when prices are high.
The important thing is to set your goals for this investment and stick to them. Whether you’re protecting your greater wealth from market volatility or diversifying your portfolio, make sure to monitor the prices of your metals every day and only invest as much as you can afford.
Withdrawing or selling your investment too soon will cause you more harm than good, but patiently investing over time can mean you finally have time to sit back, relax and enjoy your wealth.