Major events in the world have led to people wanting to find out how to invest in gold and silver. Gold and silver have for years on end been coveted precious metals. Investors who know the underlying benefits of owning gold in their portfolio have managed to convert a percentage of their wealth into gold and silver.
You can purchase gold and silver in several ways, and use either to secure your retirement years financially. If you are just getting started out in this investment space, read on to find out how you can invest in gold and silver.
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Investing in Gold
Gold exists as the best and most preferred precious metal in this industry. This metal is preferred for having the following characteristics:
- Durability – not rusting or corroding
- Its ability to conduct both heat and electricity effectively
The above properties have led to it finding application in several fields, including dentistry, electronics, jewelry making as well as a means of exchange.
The value of gold is usually determined by various forces of the market on a 24/7 basis. This precious metal trades in the market mainly as a function of sentiment. This means that its price is barely affected by laws such as those of supply and demand. The main explanation behind this state of affairs is that the supply sourced from the mines is significantly outweighed by the gold above ground that investors have hoarded. Generally speaking, this means that if investors who are hoarding gold decide to sell it, then the price drops. When the investors decide to purchase more gold, then the new supply from the mines gets absorbed rather fast, and this drives the prices of gold higher.
Why Investors hoard gold
A couple of factors have contributed to investors’ need to hoard gold over the years, including:
- Inflation – this term simply points to the loss of the buying power of money. When the real rates of return of assets such as bonds and equities become negative, people tend to purchase gold owing to the fact that its value does not drop. The value of this metal actually goes against the prices of traditional assets in the market.
- Systematic financial concerns – whenever investors get concerned about the trends in the financial behavior of major banks and money, they convert their money to gold as a store of value.
- War and political crises – these two factors have always sent investors into hoarding mode. Some investors usually convert their savings into gold upon the occurrence of either event, and wait until the economy has stabilized to cash out their holdings.
The price of silver in the market usually oscillates between its role as an industrial metal and that of the storage of value. This makes the prices of silver more volatile than those of gold.
As much as silver usually trades in line with gold as an asset that investors can hoard, the supply and demand equation for this metal usually place a major role in the determination of its price. The supply and demand equation has always fluctuated due to new innovations such as:
- The use of silver in electronic and electrical devices such as batteries, superconductors and microcircuits.
- The use of silver in the photography industry. This innovation has, however, been eclipsed by the advent of the digital camera.
- The growth of the middle-class economy in the East, in which the demand for silver-based products has skyrocketed. These consumers want more products such as medical and industrial products made from silver due to this metal’s desirable properties.
The Investment options- How can you invest in gold and silver today?
Commodity Exchange Traded Funds (ETFs)
You can access ETFs for each of the metals in the market. ETFs have been identified as a very effective and liquid means of buying and selling these precious metals. Investing using this option, however, does not give investors access to the physical metal. Investors do not have any claim on the metal that lies in the fund. Effectively speaking, the investor should not expect any gold or silver delivery to their residential address.
Gold company stocks and mutual funds
Investors have managed to come up with a way to tap into the upside of price movements of precious metals in the market by leveraging the stocks of gold and silver mining companies. If you have no idea about how gold and silver mining company stocks are valued, you should try your hand funds with managers whose performance records are exemplary.
Futures and options
You can also make money as a speculative investor by purchasing gold and silver futures and options. This investment approach offers liquidity and leverage to those who think that making huge bets on the precious metal industry is the way to go. This approach presents investors with the greatest profit and loss-making potential.
You can also purchase gold and silver coins and bars, provided you make arrangements on how you will place them in a depository or safe, for security purposes. Purchasing gold bullion is the best approach for investors who are anticipating the worst in the global economy. Long term investors find this approach very effective. Short term investors are, however, inconvenienced by the illiquidity of the gold and silver in this state.
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Certificates present investors with the benefits of gold and silver ownership without them have to worry about storage and shipping. Unfortunately, this approach cannot be viewed as real insurance against potential economic disasters in the market. Certificates are just paper; hence cannot you cannot use them to make an exchange for valuable items or assets.
Should you invest in gold and silver?
Investors include gold and silver in their investment portfolios, due to several reasons, including:
- They offer protection against inflation –
- They do not carry credit risks
- Their intrinsic value
Generally speaking, gold and silver are not like paper money. Central banks cannot print more gold like they print paper currency.
Investors also cite that gold and silver offer a low negative correlation to traditional assets such as stocks and bonds. This essentially means that including a small percentage of gold and silver in one’s investment portfolio can minimize the underlying volatility and risk.
Risks associated with investing in precious metals
Generally speaking, every type of investment in the market has its own risks. As much as gold and silver present a certain degree of security, they also present some risks that you should know about as a potential investor. Apart from the theft of your holdings (if you do not use a legit company to invest in gold and silver), an issue such as a price drop resulting from technical imbalances can strike. A technical imbalance, in this case, refers to a state in which the number of sellers in the market, exceeds that of the buyers.
That said, however, during times of economic instability, the sellers tend to benefit more, since the prices of these precious metals increase significantly.
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That will be all for this article on how to invest in gold and silver. Precious metals, as we have seen, provide effective means of the diversification of an investment portfolio. One trick to ensure that you achieve success in this field is to know your investment goals, as well as the risk profile before spending your money. Investors can harness the volatility of precious metals to accumulate wealth, but this will only work if they rely on a legit and reliable company right from the beginning.
I wish you well,
Eric, Investor and Team Member at Gold Retired!
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