The Cons Of Investing In Gold & Silver
As much as we love buying gold and silver, theres a wrong and right way to invest in precious metals. All of the downside risk becomes a problem when you invest the wrong way. With that disclaimer out of the way, the cons include:
- Investing in precious metals by digital means some investors believe its safe to buy gold ETFs and stocks. We vehemently disagree with this sentiment. In fact, we know that buying gold and silver stocks and ETFs is a terribly risky proposition. In particular, mining stocks are scary because you might choose the wrong company. And before you know it, your investment is worthless because the company underperformed.
- Buying physical precious metals without tax advantages this happens when the investor fails to open a gold IRA. Owning physical precious metals is better than not owning any at all. But buying them and stuffing them in your closet is a foolish way to invest. You need to contact a reputable precious metals IRA company like Regal Assets and open an account right away. The tax advantages alone make this an incredible investment and an exciting way to secure your retirement future.
A Hedge Against Fiat Currency Debasement
Lets start with the easy one.
A core advantage of silver is as a hedge against the debasement of fiat currencies. Silver is traditionally regarded as a potential answer for sound money. It typically holds its value relative to fiat currency, like with gold and more recently, bitcoin.
Central Banks across the world appear committed to doveish monetary policy and in particular Quantitative Easing . Whilst this remains the case, the trend toward fiat debasement seems likely to continue.
Below Ive included a chart showing the dramatic increase in the Feds balance sheet. It now stands at $8.6 Trillion and were honing in on $9 Trillion.
Whilst there is talk of tapering and indeed this has begun, the reality is this will only slow the rate of change of money printing. And this assumes nothing changes that allows the Fed to alter its current stance.
With large levels of debt and growing fiscal spending plans, in my view, the momentum still lies with the debasement camp.
Understanding The Risks Of Investing In Silver
There are things you should know before you invest in silver to avoid damaging your portfolio performance. Before you add silver to your portfolio, understanding the risks you may be exposing yourself to is essential. Some things to consider before investing in silver include:
- Silver can be a great way to diversify your portfolio and hedge against loss. However, it is also subject to the law of supply and demand, which can result in unpredicted, sharp changes in price.
- When buying silver, you pay the current price plus a premium. Its wise to compare the premiums of different broker-dealers to ensure you get the best price possible.
- As with all types of investments, there is the risk of fraud. Steer clear of any broker promising guaranteed returns, who sends you spam mail and phone calls, or who claims to make a lot of money with little risk.
- Silver and precious metals are often purchased on , increasing your maximum potential losses. This can be very risky because you are using borrowed money to buy more of the asset, and youre paying an interest rate for the borrowed money.
- Certain industries such as technology may replace silver in their products with other materials. This would ultimately lower the demand for silver and thus, its price.
You may purchase silver as jewelry or collectible coins, too, but they may not be liquid assets and their value may solely depend on what a buyer may be willing to pay.
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Making The Choice To Invest
Its easy to make the case for or against investing in precious metals. However, case studies do exist proving investing in a precious metal could help you through a financial crisis. For example, during Greeces economic crisis, bank withdrawals were limited to 60 euros a day. Greeks would have to wait long lines to withdraw petty amounts of cash. In cases like this, having some gold stowed away can be incredibly helpful.
One notable advocate of gold investment is Kevin O Leary, a successful Canadian businessman best known for his appearances on Shark Tank. O Leary invests 5 percent of his portfolio in gold bullion and ETFs. When gold increases in price significantly, he sells some. When gold diminishes in value, he buys some more.
If you do wish to invest, you can buy physical gold bars from a refinery like Manhattan Gold & Silver. Regardless of the provider you choose, make certain you are buying your precious metals at a reasonable price and purchase secure storage for it.
In Part 2 of this series, we will look at holding methods for precious metals.
The Pros Of Investing In Silver:
-Avoid the lack of buying energy if the dollar decreases in value by way of inflation. If you happen to purchase silver, your silver will improve in value because the dollar decreases.
-Silver is tangible and can be utilized for sale, barter or commerce in case of financial collapse or large forex devaluation.
-Silver has many industrial uses and as such is greater than only a precious metallic/ retailer for wealth. Silver is utilized in electronics, antibacterial preparations, clothes, technology and more. Thus its demand will proceed so long as technology does.
-Silver is comparatively cheap per ounce in comparison with gold and different valuable metals. Thus its simpler to start investing in silver in comparison with gold.
-Junk silver the 90% silver quarters and dimes once used as currency.
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The Cons Of Investing In Silver:
-Silver can go down in value after you purchase it. This true of just about any investment you make, nevertheless its necessary to acknowledge that there isnt any assure that silver will hold going up in worth.
-Silver cannot at all times be liquidated instantly if youll want to purchase one thing with money. If you do not have a silver supplier in your space, or pawn store or jeweler the place you possibly can commerce within the silver for cash, its possible youll expertise a delay between whenever you want your money and when you may get cash in your silver.
-Silver held in a singles possession is liable to theft even when properly secured.
-Different funding alternatives actual property, shares, small companies might outperform your returns from silver. Theres the chance that youll not make as a lot cash investing in silver as youll in another enterprise or commodity.
-Regardless of the potential cons to investing in silver, many buyers really feel the professionals outweigh the drawbacks and switch to silver as a protected haven for his or her cash, a hedge towards inflation, and a real funding which will see higher returns than gold within the months and years forward.
The Gold To Silver Ratio
If you buy the arguments for sound money, then there is reason to believe silver may currently represent better value than gold.
The reason is if we look at the historic gold to silver ratio. That is the price of gold expressed in terms of silver.
Currently, the gold to silver ratio stands at around 75. In other words, it cost 75 ounces of silver to buy one ounce of gold. Over time it has varied with a median of between 30 and 60 depending on your time frame.
If you believe it will over time revert to the average, then there is reason to believe silver represents value relative to gold.
Even if it were to move only to a ratio of 60, then we could have a silver price of over $30. That assumes gold stays at todays price and doesnt move higher itself.
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Advantages Of Silver Coins
Coins have several advantages over bars:
Another potential advantage is that some coins that are considered numismatic may be worth more than their precious metal content. To find out why lets quickly go over the difference between numismatic and bullion coins.
Gold And Silver Vs Inflation
Today, gold is being discussed because of the rise in inflation.
And, as we already showed, over 2000 year periods gold has kept up with inflation. But, that hardly means that it does over shorter periods of time.
This table here shows how gold and silver performed during many of the high inflation years of the 70s and early 80s.
Dont get me wrong, there were years in the 70s where gold did very, very well.
But, it is hardly a given that if there is inflation, gold and silver perform well. 1979 in particular is just about solely responsible for being the reason that we think gold and silver always do well during inflationary times. These 100 or 400% gains really mess with the averages. But If you take any single year in isolation, theres no correlation between the return of gold and the rate of inflation.
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How To Buy Physical Gold
Heres the rub: once youve decided to make gold part of your investment portfolio, you have to be familiar with what gold products are available to purchase. Equally important is knowing how and where to purchase them from.
Gold may be gold but there are actually a variety of choices available for investors. If you are buying gold through a cash purchase and are intending to store it for yourself, there are unlimited options.
But, if you are buying gold for your IRA, then you are stuck to IRA-permissible gold. Buying gold is not similar to buying gold mining stocks or investing in gold ETFs . Gold is a physical product and sellers ship it to your address or to an IRS-approved depository for storage in case of IRA gold. Here are a few options if you are shopping for gold:
- Gold Bars
- Numismatic Gold Coins
Each type of gold comes with its own advantages and disadvantages when you purchase them. You can talk to your gold broker to discuss your needs and how to pick the type of gold products that would be most appropriate. Normally, you can just do this via a phone call. however, it’s recommended to carefully review your gold dealer and make the necessary predations in order to find the best gold dealer.
Investing In Silver Pros
- Silver has displayed much higher historical appreciation potential compared to its gold counterpart. Taking a brief look at 30 year historical silver price charts allows you to witness silver going from mere $5.00 per ounce in the 1980s and 90s to all the way up to $40 for a silver ounce in September of 2011.
- Silver coins are very practical for survival purposes allowing their owners to buy basic essentials and food in difficult economic times when paper currencies can potentially default.
- Silver has more industrial applications in various fields ranging from photography, electronics, jewelry to solar energy and medical uses. Since a huge emphasis is made to continue developing self sustainable energy sources and doing without fossil fuels, silver is an essential component in manufacturing solar energy cells.Silver is very expensive to mine independently apart from gold and it appears much scarcer in nature than gold, so silver has a huge potential to appreciate vs gold. Silver is mostly obtained as a byproduct of gold mining industry.
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How Gold Performed During Times Of Market Stress
Most interesting I think is the second row here, the subprime crisis. During a time when our country was literally seeing bank runs and the failure of some really large banks and financial institutions like Wachovia, Lehman Brothers, Bear Sterns, for example. Gold fell more than 25%.
Maybe its just me, but I would think gold would be a pretty good investment if you are worried about the US financial system falling apart. But it turns out cash would have been much better.
A few of these other events were periods that saw stress on other major world economies, not necessarily the US.
The Russia debt crisis saw Russia literally default on its debt, and saw triple digit inflation for the country, the Asian crisis saw a lot of Southeast Asian countries come close to going bankrupt and was actually responsible for the US stock market circuit breakers triggering for the first time in history. So, there was a lot of panic here around that too. And you can see from the table, gold was still hardly a great store of value over these periods.
Then the last line I threw in there only because of the recent inflation headlines. And while a 5% drop in gold is not necessarily significant, the fact that its coming at a time when inflation is rising a little over 5%, is interesting I think.
Investing In Silver Vs Investing In Gold
Gold and silver are both valued precious metals, but they may have subtle differences when it comes to investing.
|Investing in Silver
|Investing in Gold
|There is a larger supply of silver available and as a result, it is less expensive than gold.
|There is a smaller supply of gold available and as a result, it is more expensive than silver.
|Silver is a better inflation hedge than gold because of industrial use. This means that in a strong economy, the demand is high, and in a weak economy, the demand is lower.
|Due to golds lack of need for industrial use , it is a weaker inflation hedge compared to silver.
|May be more volatile than gold
|Is less volatile than silver
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Dense Potable And No Requirement
It is a dense material. Therefore, you can hold silver bars in your hand easily but it will be very difficult to handle this amount in the form of bills and paper. This means that it takes a smaller space than dollars of equal value.
And, there is no need to have special skills and knowledge to buy. Therefore, anyone can buy and he can take it to anywhere in the world where he wants.
Gold And Silver Investment Comparison: Pros And Cons
An honest gold and silver investment comparison will look at both the advantages and disadvantages of each metal. Gold bullion is one of the most popular precious metals, with silver being considered the poor cousin until recently. It is true that a silver bullion investment will be much less valuable than an identical weight of gold, but one the other hand silver investing will also cost a lot less than gold per troy ounce as well. When you look at the percentages that the value of the metals have grown over the last year or two, silver has a percentage that exceeds gold significantly.
When comparing a gold and silver investment you need to look at the type of investment being compared. You can invest in these metals using various methods such as bullion, mining stocks, mutual funds, being the most popular of them. You can compromise and choose a precious metals mutual fund that includes both types, that way you can have a diversified investment portfolio with a single transaction. Both metals have been used for many centuries, but gold has traditionally been seen as more valuable and as a symbol of wealth, while this is not true of silver.
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The Pros & Cons Of Investing In Silver Bullion
The comments below are an edited and abridged synopsis of an article by Lorimer Williams
Silverand gold are having an underwhelming year, and many investors are wonderingwhether buying silver is the right choice. Lorimer takes a look at the pros:
1. Protection: Silver offers protection frompolitical and economic uncertainty.
2. Tangible money: While cash, stocks, bonds andother financial products are accepted forms of wealth, they are essentiallystill digital promissory notes, and silver is money.
3. Cheaper than gold: Silver is cheaper thangold, easier to buy, and more versatile to spend.
4. Higher returns than gold: Silver is cheaperthan gold and will see a bigger percentage gain when the price rises.
5. History: Silver and gold have been recognizedfor their value throughout history, so theres an expectation that they willendure while fiat currencies may fall to the wayside.
6. Anonymity: Silver offers the same benefit ascash in that it gives users a degree of anonymity with regard to spending.
1. Lack of liquidity: Silver may not beimmediately liquid.
2. Danger of theft: Holding silver can leaveinvestors vulnerable to theft.
3. Weak return on investment: Although silver isa good safe-haven asset, it may not perform as well as other investments.
Gold Iras Are Ultimately Disaster Insurance For Your Portfolio
You pay for health insurance, life insurance, homeowners insurance, and car insurance to protect you from unanticipated disease, premature death, fire or theft, and a car accident which is not even your fault respectively. Why would you not protect your financial future and portfolio assets against unforeseen dangers which no one can accurately predict except for to say that they will occur in the future as they have consistently in the past. Gold IRAs protect you from a whole host of financial and geopolitical dangers.
Among these are consistent and historically unparalleled government spending and stratospheric debt levels, uncertainties in the market, political instability, the ravages of inflation, and even systemic or financial collapse. Name another single form of investment or asset class that can do all of these things period, much less half as well. You will not find one.
Now let’s examine some of the various cons to Gold IRAs:
Gold IRA Cons
- They will not allow you to physically eyeball your gold holdings
- They are not setup to be short term, quick profit investments
- They do not provide either dividends, interest payments, or any yield
We will consider these cons in greater detail as well now.
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