Today I shall take you through the questions to ask yourself before buying precious metals. Buying physical gold or silver as a form of investing is not always as straightforward as it sounds. Novice investors have found themselves in a variety of options: “Should I purchase minted bars or sovereign coins?” “Maybe that limited edition coin would be a viable investment?”. If you are also trying to figure out how to get started with precious metals, then you are in the right place. Read on to find out more.
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Sensible investors view bullion options by the price and premium on the gold spot price. However, the premium is only one part of the equation. This doesn’t necessarily mean that you’ll acquire that premium back once it is sold. To make matters worse, there are unscrupulous dealers out there. They will trick you into purchasing numismatics and other varied collectibles that have a big premium and won’t retain their value over time.
As a result, it is crucial for you to acquire an understanding of precious metals before setting your foot in this market. This is why in my article today, I’ll answer some of the most crucial questions you should ask yourself before purchasing precious metals.
What is the best way to invest in precious metals?
You can invest in precious metals by purchasing physical metals like bullion coins and bullion bars or through financial products like gold exchange-traded funds (ETFs). Each method poses its own advantages and disadvantages, however. While investing in precious metals via ETFs sounds appealing to the ear due to its convenience, there are several key issues that investors need to be aware of in relation to this mode of investment.
For instance, if you invest in gold through an ETF, you don’t really possess the metal. You have no claim on the gold present within the fund. This entirely means that you cannot take delivery of the metal if the need arises.
In contrast to this, the key advantage of purchasing physical gold (such as bars and coins) is that you own this gold. Furthermore, you own an asset that can be stored outside the financial system, which in turn reduces counterparty risk.
What is counterparty risk?
Counterparty risk is the risk that the other party in an agreement will default or fail to live up to its key obligations. The moment investors buy gold ETFs, they are simply relying on financial institutions to deliver on their obligations. On such a notion, buying physical metals is a more sensible option.
Key Highlights
- Investors can get exposed to precious metals in two main ways: physical gold (such as bars and coins) or financial products the likes of ETFs.
- You don’t actually own the metal the moment you are in possession of precious metals ETF.
Should I Buy Gold Bullion or Silver Bullion?
While both gold and silver possess attractive features, gold is the most preferred investment for the average precious metals investor planning on investing. Gold, unlike silver, has a much larger liquid market whose driving force is investment and jewelry demand. Again the price of gold is less volatile compared to that of silver.
In the meantime, silver tends to be more speculative and boasts a stronger relationship to economic activity. This is with regard to the fact that silver has many industrial uses. As such, silver can be attractive during down cycles when the price of the metal is not expensive. The key advantage of silver is that it is way cheaper than gold. Therefore, it’s more accessible to small-scale investors.
Key Highlights
- Compared to silver, gold is a better investment for most investors
- The price of silver is more volatile than that of gold.
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Bullion Bars vs. Bullion Coins- Which Are Better as an Investment?
Bullion coins, like Gold American Eagles, are the best type of precious metals according to most investors. This is with regard to the fact that sovereign coins are easily recognized, easy to trade, and generally sell at higher premiums compared to bars. You could actually purchase small bullion bars, such as a 1 oz bullion bar, but they tend to be way harder to sell back. Again, the transaction costs are higher. For institutional buyers or those seeking to acquire large quantities of precious metals, large bullion bars are a more sensible option, due to their lower premiums which are affordable to investors.
Key Highlights
- According to most investors, coins are the best way to buy precious metals
- Coins are highly liquid and easy to trade at the same time
- Bullion bars are more suited to large-scale buyers
What are the best bullion Coins to buy?
For investors living in North America, American Eagle and Canadian Maple Leaf coins, both silver, and gold, are the ideal coins to buy. For investors based in Europe, gold or silver Eagles or Austrian Philharmonics are good coins to start your investment. The South African Krugerrand coin is yet another excellent coin for investors. This gold version is minted from approximately 91.7% pure gold alloy and contains a single troy ounce of gold. It forms part of the list of the most traded gold coins in the world today.
Other good coins you can buy and that are reasonably liquid include the Australian Kangaroo coin and the English Britannia coin. However, investors should keep off from sovereign coins from lesser-known countries. The problem with these coins is that they are usually more expensive to purchase and resell for lower amounts than the better-known coins.
Key Highlights
- The ideal gold and silver coins for North American investors are the Canadian Maple Leaf and the American Eagle.
- For European investors, Eagles or Austrian Philharmonics are good coins to buy.
What is the Best Place to Buy Physical Precious Metals?
The most ideal way to buy physical precious metals is through an online dealer offering a buy-and-store program with non-bank London Bullion Market Association (LMBA) verified vaults. As much as possible, investors should avoid taking physical possession of their gold or silver unless they feel there is an emergency. It’s much safer to store your bullion in a secure vault. Again, it’s much easier to sell your metals that are stored in a secure vault since you don’t have to break the chain of custody.
Key Highlights
- The best place to purchase precious metals is through an online dealer
- Always go for a dealer who offers a buy-and-store program
- Investors should avoid taking physical delivery to their homes as much as possible
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That will be all for this post on the questions to ask yourself before purchasing precious metals today. Each and every investment portfolio should contain an allocation to precious metals. This is possible because you’ve taken the first step towards ensuring that your financial future is well accounted for by reading this primer on how to purchase precious metals. With all of the uncertainty in today’s global economy, it is important to diversify and add the security of physical precious metals to your investment plan.
I wish you well,
Eric, Investor and Team Member at Gold Retired!
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