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Today's digital era has enabled anyone to own or invest in gold, silver, and other assets without necessarily having them physically.
Gold and silver provide one of the best ways to preserve your assets' value without worrying about market fluctuations, inflation, and whims.
Gold and silver have long been used as currencies for thousands of years and still hold their value even as other assets decline or are affected by inflation.
One of the reasons why gold and silver aren't affected by inflation is because there is only so much gold and silver. The actual value of silver or gold is relatively easy, too, as the law of physical supply rules these.
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How to Invest in Precious Metals
Proper planning is key when looking to invest in precious metals. Although one of the best investments you can make, it is always advisable to know what your goals are before diving into the precious metals investment market.
Getting your goals and ambitions straight will make it easier for you to make informed and calculated decisions on the same. It is also worth noting that precious metals shouldn't be your only investment portfolio.
The wise thing to do would be to mix your investments up to protect yourself from market volatility and even improve the chances of higher returns on investment.
Although you might know this already, gold and silver are available in several different forms for you to choose from.
These are:
Precious Metals IRA
This popular option allows you to buy the precious metals and have them kept safely in a bank vault, and enjoy all the tax advantages of a regular IRA.
This gives the investor the satisfaction of knowing they own these precious metals and that they are kept safe in a vault but can be assessable at a moment's notice. Most people prefer this option to keep the physical bars or coins at their residence.
Holding gold and silver coins and bars have a few downsides. One often has to pay a premium for the coins and bars since they have to be manufactured and come with distribution mark-ups.
Secondly, you'll have some small fees for insurance and storage for your precious metals IRA.
Physical Metals
One of the greatest benefits of investing in gold and silver is that they can be bought in their physical/tangible form, unlike bonds and stocks.
In other words, you can choose to buy coins and bars such as American Eagle coins or part of a brokerage account in a retirement account.
Unlike bonds and stocks, you can have your purchased coins/bars held by a third-party depository or even have them shipped physically to you.
Exchange-Traded Funds (ETFs)
This is one of the most popular and preferred ways to get silver and gold without worrying about storage costs. It entails buying shares and keeping them safe in a traditional brokerage account.
The ETF operator is responsible for handling the physical gold and silver and costs related to the same. Operators will often charge an expense ratio based on how much they have invested.
It is also worth noting that ETF investors do not have access to the physical metals but rather shares in the same. Precious-metal ETFs may also be taxed as collectibles, which could make them attract lower long-term capital gains.
Mining Stocks and Funds
This option involves buying shares with mining companies or owning mutual funds that these miners hold. While not a popular option, investing in these precious metals is still an option.
Precious Metals IRA: Definition and Guide
Simply put, a precious metals IRA is a Traditional SEP, ROTH, Rollover, SIMPLE, or inherited IRA owning precious metals including palladium, platinum, silver, and gold.
IRA holders are allowed to use funds in their respective IRA accounts to buy approved precious metals.
This, of course, was after the passing of the Taxpayer Relief Act of 1997, which enabled IRA account owners to buy precious metals since 1998. The act helped remove investment options beyond paper assets.
Types of precious metals a Precious Metals IRA can hold:
A precious metals IRA can own four types of precious metals: platinum, silver, gold, and palladium.
IRA gold is however limited to 1/10 ounce, ¼ ounce, ½ ounce, and 1 ounce Gold American Eagles or other gold products (bars or coins) with a purity of at least .995%.
Silver must also have a purity of at least .999% to qualify for an IRA. Palladium and platinum must also be .9995% to qualify for an IRA.
Reasons to Invest in Gold and Silver
Here are a few reasons you too, should consider investing in gold and silver.
Gold has stood the test of time for thousands of years and remained relevant even after kingdoms, empires, and nations have disappeared with their currencies. It is considered one of the oldest mediums of exchange and has long been used as a store of wealth.
Silver has also served an equivalent function but at a lower value. It often is considered the poor man's gold.
Although governments may recognize modern electronic and paper currencies, they do not have any intrinsic value. Silver and gold represent physical commodities that are valued according to their rarity and practical applications.
While various currencies/monies are only that, gold and silver can be used in a wide range of industrial applications and jewelry fabrication.
Let us focus on gold, as it is better documented than silver. There are two arguments against gold investment. First, gold doesn't pay dividends or interest; secondly, it is not an all-weather investment.
This is to say; that gold may perform consistently well in one market but not in every market environment.
Although these concerns may be legitimate, they miss an even bigger point; gold is one of the few assets that perform incredibly well in any economy, even when financial markets are at their worst.
In other words, gold has a true counter-cyclical value that performs positively while paper assets are on the downfall.
This theory has been confirmed severally, especially when the United States experienced extreme crises after World War II, where gold outperformed the financial markets.
Questions to Ask Yourself Before Investing in Silver and Gold
One of the main reasons many choose to invest in precious metals is the fact that these assets aren't anyone's liability.
For this reason, investing in physically-backed exchange-traded offerings, digital gold, or precious physical metals (bars and coins in this case) helps achieve this sole purpose.
While one may also invest in paper gold (e.g., futures contracts and gold certificates), it is worth noting that these aren't backed by physical metal.
Thus, you'll have no ownership title and cannot use these to exchange with the physical metal. Paper gold investors can be termed unsecured creditors for what it is worth.
For this reason, you are better placed investing in the precious physical metal that is not only fully-backed ETFs but also gives you a direct ownership title.
Investing in fully-backed physical precious metals also means you can redeem your shares for physical metals.
Investing in either allocated or unallocated metals have its implications. Allocated precious metals offer the highest level of investor safety compared to unallocated metals.
This is because allocated metals provide holder ownership title and are unencumbered and segregated. It is also worth noting that allocated precious metals cannot be leased to third parties or rented.
Unallocated precious metals do not provide ownership title and are hence unsecured, which again introduces counterparty risks.
Investing in or owning precious metals helps gives you an edge over various economic risks. This can however only be achieved when you invest in metals without a risky counterparty.
Most reputable storage providers in the world offer safe storage with insurance included.
Some of the biggest players in precious metals storage are bullion banks, e.g., JP Morgan or HSBC. As seen in 2008, even the most secure and largest financial institutions are vulnerable to market calamities.
Direct investment (in coins and bars) provides an easy way to take physical delivery of your valuable precious metals.
This is, however, as long as you are willing to take on key tradeoffs, including traveling to the dealer, mark-ups, and choosing a safe location to deposit/store the metals securely.
The best bullion ETF providers do not allow the average investor to take delivery of underlying metals.
Although most people look into investing in precious metals for the long-term, there are times when you want to liquidate part or all the investment. Selling gold/silver bars and coins can be a tiring and complicated process.
Nevertheless, closed-end funds and ETFs can be easily traced on an exchange platform, such as the Toronto or New York stock market. You can thus have your precious metals sold in as little as a day.
What is a Gold Bullion Bank?
Although you might know this already, mined gold/silver is first refined before it can be sold to bullion banks before it can then be sold to buyers for industrial applications. Bullion banks can thus be defined as the middleman between buyers and suppliers.
In other words, bullion banks serve an almost similar purpose as regular banks are between you and the government reserve bank.
Miners and producers sell their gold to bullion banks from which buyers can buy. These banks are responsible for handling finances, storing the gold, and distributing the gold to jewelry makers, investment, and industrial purposes all across the globe.
In this case, buyers are mints and companies that buy gold/silver coins or bars.
Rules of Investing in Precious Metals
Never let a salesperson force you into investing in anything, especially precious metals, unless you wish to. As with any other investment portfolio, there are risks you need to be aware of and comfortable with when investing.
That said, never give into a salesperson, however professional they sound, pushing you to invest in what you don't want.
Although there's no centralized list of regulator-approved gold dealers, most reputable dealers have BBB accreditation. There are also searchable databases of coin sellers, such as the U.S. Mint, where you can look up a dealer.
You can also check the status of various Futures dealers with the National Futures, Associations, and Background Affiliation Status Information Center. Take time and effort to research potential dealers before investing with them.
Like everything else, certain risks come with investing in precious metals, e.g., borrowed money. You might thus want to look for ways to avoid these risks because leverage leads to exponential loss.
Investing in precious metals is done for safety, not to dramatically increase your risk, so avoid leverage at all cost.
You need to know all fees involved in creating a precious metals portfolio. Some of the fees involved include commissions, opening account fees, storage fees, leveraged portion fees, management fees, and ongoing interest on the loan, among others.
Get a full account of all these to see how much it will cost you in the long run. Be sure to understand all these costs before investing.
Important Points to Keep in Mind
Conclusion
Always research a commodity, provider, and dealer before investing in silver or gold. You also need to know your risk tolerance before diving in.
It is considerably more expensive than silver, with one ounce of gold costing around $1,880 while an ounce of silver costs about $24.
The supply of silver exceeds that of gold by a huge margin. Considering the increasing demand for gold, investing more in gold than silver makes perfect sense.
Silver and related commodities allow you to diversify your portfolio, especially when looking to make long-term investments.
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I started BMOGAM Viewpoints as a way to compile all my views on investing in one place. I own my home, have some real estate, and own a few stocks like most people, but what really drives my interest in investing is I have a strong love of precious metals, especially gold.
