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There is a lot for prospective investors to consider when investing in precious metals. Is it better to buy coins and bars or exchange-traded funds in the metals market? Where is the best place to keep these assets, and is it safer to acquire silver online or from a local dealer?
Amidst all the uncertainty, the most pressing concern is how much of a certain metal one should have. In this article, we answer this question by examining the commodities market and how it can be applied to precious metals investing.
It is important to consider the pros and cons of investing in gold and silver before making any decisions. Whether you are a novice investor or a savvy financial expert, this post will provide insight into the potential benefits associated with investing in gold and silver.
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Gold and Silver: The Precious Metals
For thousands of years, gold and silver have been used as money. These metals are valuable for many reasons. They have intrinsic value because they are rare and maintain their value over time because they don't rust or decay when exposed to the elements.
Gold is a soft, lustrous metal that is a highly sought-after industrial commodity. It is commonly used in jewelry, electronics and dental work. One of the main reasons that gold prices rose rapidly during the past decade is that investors and jewelry consumers value it as an investment.
The yellow metal also holds a high monetary value because of its scarcity. In addition, most countries worldwide do not produce enough gold to meet their demand for bullion, which contributes to gold's high price point.
Silver is another precious metal used for money and bartering throughout history. This soft, white metal has industrial applications in electronics and medicine. It is also used for jewelry, silverware and cash-to-cash transactions.
Historical Trends in Gold and Silver Prices
In the past decade, gold has been investors' most preferred type of precious metal. During the ten years from August 2008 to August 2018, gold prices nearly tripled from $550/oz. to $1,350/oz., beating silver's rise from $32/oz. to $47/oz. During this same period, silver rose by nearly 50%.
So what does all of this mean for investors? Is it better to buy gold or silver? To answer this question, we first need to understand what factors influence precious metal prices. Many metals are traded on the futures market, a commodity trading floor where buyers and sellers agree on a date and price for future metal delivery. This contract conveys ownership rights over a specified amount of metal and full financial liability for its value.
It is important to note that the price at which these assets are bought and sold is often far removed from the commodity's intrinsic value. Therefore, understanding the factors influencing these futures prices is one of the most important aspects of investing in precious metals.
Factors That Influence Precious Metal Prices
Several factors affect precious metal prices. Here are some of the key drivers of the gold and silver markets.
Supply and Demand
When supply exceeds demand, prices tend to decline. Similarly, when demand exceeds supply, prices tend to rise. Gold and silver are mined from the earth naturally over time. This means that both of these commodities are limited in supply. Therefore, when demand for these assets increases, their prices rise and vice versa.
Inflation occurs when a country's aggregate price level increases over time. The underlying factors that cause inflation include changes in the money supply, excess government spending and an increase in the price of goods and services. Gold prices tend to rise during high inflation because it is viewed as a hedge against currency depreciation.
When interest rates rise, gold prices decline because it becomes less desirable as a haven. The inverse is also true—when interest rates decline, gold increases in value as an investor's preferred haven asset.
GDP and GDP Growth Forecast
GDP measures the overall value of goods and services produced by a country's economy. The GDP growth forecast estimates the expected rate at which this country's economy will grow over time. Rising GDP generally leads to inflation and higher interest rates, which influence the price of gold and silver.
The stock market refers to the prices of stocks traded on various exchanges. As the stock market rises, interest in precious metals declines because they are less appealing or essential as a haven asset. People tend to invest in precious metals when stocks decline to hedge against economic uncertainty.
A country's political climate is heavily influenced by its government's fiscal policies and regulations. If a country faces political instability, the overall economy will suffer and the price of gold and silver can rise.
Why You Should Invest in Gold and Silver
Gold and silver have long been considered precious metals that can help make a person's wealth grow. While most people believe that gold is the only way to gain long-term profitability, many are starting to recognize that silver can be equally beneficial.
In recent years, gold and silver prices have soared, which is expected to continue. The cost of both metals has increased exponentially since 2000. As inflation rises, investors see dollars lose value daily. Gold and silver's value can decrease but have traditionally maintained their value over time. Here are some reasons you should consider investing in precious metals.
Gold and silver are not subject to fluctuations in value that affect national currencies. Precious metals have a stellar reputation for withstanding economic turmoil and maintaining value.
Although most tangible assets deteriorate with time, gold and silver tend to increase or stay at the same value. Furthermore, in times of global crisis, it performs better than most other investment options.
The price of gold increased significantly during the 2008 recession, while other investments lost value during this period. Similarly, many people sought financial security in precious metals during the coronavirus outbreak.
The value of gold and silver extends beyond the financial realm. Precious metals have been considered cultural symbols since the 1600s. People in Asia, Africa, Europe and the Americas have used gold and silver coins to exchange goods safely and securely.
Gold has been a currency for centuries, while silver has been known as a commodity for over 5,000 years. This is why both metals are great investments that transcend borders.
Gold and silver can be turned into liquid assets relatively quickly, appealing to investors who need to access their cash. Historically, precious metals have been used as currency for large purchases and payments. Many companies still pay part of employee salaries in gold or silver coins. Furthermore, gold and silver can be easily traded back into currency after being held for a period of time.
Some investors believe that a robust portfolio should include a variety of assets. Gold and silver are considered good long-term investments, although they can sometimes be volatile. Therefore, including multiple metals in your portfolio can help lower the financial risk of investing in precious metals.
Great Generational Investment
Gold and silver may be the answer if you've been considering a diversified inheritance for future generations. Holding onto precious metals for the benefit of future generations, such as your great-grandchildren, is an option worth considering. They'd be thankful to you for it because precious metals tend to rise in price over time.
Rare metals like gold and silver can fetch three times their normal price when supply is severely limited. The precious metals might also be passed down as treasured treasures to be used as symbols of love and admiration for you by future generations. Precious metals mined hundreds of years ago and held upon to this day continue to rise in value.
Ways You Can Invest in Gold and Silver
There are many investment vehicles available for accredited investors.
1. Exchange Traded Funds (ETF)
An ETF is an investment product that tracks the performance of a gold or silver share. These products expose investors to the price movement of an underlying asset without having to purchase that asset physically. As an added benefit, ETFs can offer low-cost index tracking without the management fees associated with actively managed mutual funds.
Many investors use ETFs as a way to diversify their portfolios. For example, by having exposure to gold and silver, a person can invest in equities if they are looking to access their cash or invest in low-cost gold and silver ETFs if they are looking to hold assets that offer some level of diversification.
2. Gold and Silver Bullion
Bullion is physical gold or silver refined to a specific purity, usually 99.9% and is typically bought as bars, coins or rounds. Bullion coins and bars come in various sizes ranging from small 1/10 ounce coins for investors on a budget to large 400-ounce bars suitable for larger investors.
They are typically produced by government mints and come in denominations such as the American Gold Eagle and Silver Eagle coins, the South African Krugerrand, the Chinese Gold Panda, the Canadian Maple Leaf and the Australian Nugget.
Bullion bars are also made from pure gold or silver and are usually stamped with their exact weight, fineness and serial number. Popular gold and silver bars include those produced by PAMP Suisse, Credit Suisse, Johnson Matthey and the Royal Canadian Mint.
Bullion is also an attractive option for investors who prefer tangible assets and want to invest in a haven asset. Gold and silver bullion are also easy to store and transport, making them ideal investments for those who want to keep their precious metals close at hand.
There are various ways to purchase bullion online, through dealers or precious metals exchanges. Researching and shopping around is important to find the best prices and selections.
3. Gold and Silver Futures
Futures are contracts between two parties to buy or sell an asset at a predetermined price at a specified time in the future. Gold and silver futures are traded on the commodities exchanges, such as the London Metals Exchange (LME), New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM).
When trading futures, you can either go long or short. This means that you can buy a futures contract if you expect the price of gold or silver to rise or sell a futures contract if you expect the price to fall.
Generally, when trading futures, you will need to put up an initial margin, which is a small percentage of the contract's full value. The exchange sets this margin and serves as a performance bond for your position.
4. Mining Stocks
Mining stocks represent shares of ownership in a company actively engaged in the exploration, extraction and processing of gold and silver. By investing in these stocks, investors can benefit from the success of a company's operations rather than merely owning the physical asset itself.
Investing in gold and silver by buying mining stocks has several advantages. Firstly, they provide investors with a way to diversify their investments, as the price of gold and silver can be largely independent of stock markets.
Additionally, when investing in mining stocks, investors can leverage the expertise and capital of a professional management team, which can often result in higher returns.
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How Much Money Should You Invest in Gold and Silver?
The amount of money you should invest in gold and silver depends on your goals and risk tolerance. Generally, it is recommended to allocate up to 10% of your total investments into gold and silver. This is because gold and silver are considered safe-haven assets, meaning their values tend to increase when other markets decline. Furthermore, gold and silver offer excellent long-term investment potential due to their historical track record of growth and stability.
You should consider your specific financial situation and goals when determining how much to invest in gold and silver. For example, if you want to diversify your portfolio, invest more than 10% of your total investments in gold and silver.
Alternatively, you may want to invest less than 10% if you are a conservative investor. It is important to remember that gold and silver prices can be volatile, so you should be prepared for some level of risk when investing in these commodities.
Consider how you plan to store your gold and silver investments. Physical gold and silver can be stored securely in a safe or vault, whereas paper gold and silver can be held in an exchange-traded fund or a broker account. Investing in physical gold and silver may require more upfront costs but can offer the added benefit of having control over your investments.
Gold and silver are considered safe-haven investments because they tend to hold their value better than other assets during periods of economic uncertainty. Before investing in gold or silver, it is important to have a clear understanding of your goals and risk tolerance. As with any investment, it is important to research the market and understand the potential risks and rewards before making any decisions.