- 12 Jan 2023
- Precious Metals
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Investors typically flock to gold in times of economic downturn and excessive inflation. In the same vein as gold, silver is seen as a haven investment with far less fanfare. Both precious metals have been in high demand throughout history, making them attractive when other investments, such as equities and currencies, decline in value.
Gold prices reached an all-time high of over $2,000 per ounce in 2020 due to global pandemic concerns and a falling U.S. currency. Even silver has seen a price increase. As of August, silver sold for $28 per ounce, up $14 from its low point in 2020. Even in prosperous times, many investors allocate some of their portfolios to precious metals like gold and silver.
Since ancient times the value of precious metals has been determined by scarcity and time. The longer an item has been valued at a high price, the less likely it is that more will be produced (in other words, more people want to own rare gold than common silver). Silver is a metal that is typically traded in smaller quantities than other precious metals, such as gold and platinum.
Silver can produce such goods as jewelry, flatware, tableware and photographic film, while it also has other uses in electronics. The future of silver may be more related to its industrial use than its use as an investment vehicle.
The price of silver directly relates to the price of gold and other commodities important to the mining industry. The price of silver is often quoted as a ratio relative to gold since, historically, it has tracked gold very closely.
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What Factors Should You Consider When Deciding to Invest in Gold or Silver
Precious metals have established a distinct market niche throughout their history. When there is a financial or economic crisis, there is an uptick in demand for gold. Whenever the stock market has a massacre, the price of gold increases because it is seen as a haven investment. Gold's value rises as investors flee to it as a shelter from the turmoil around them.
Another global economic slump has led to a renewed interest in investing in precious metals. What, though, is the preference between gold and silver? Both precious metals are smart purchases for these reasons. Additionally, they are useful in fighting inflation. Investing in precious metals, however, is subject to the same ups and downs as any other type of asset.
To decide which metal is best for your portfolio, you need to know how they are utilized, how they are affected by the economy and what technical qualities they have. Remember several important distinctions when picking which metal to put your money into.
In a purely mathematical sense, silver is cheaper than gold. That's why gold is a better safe-haven investment than other assets. Gold is held by the government and banks, while silver is far less common.
This makes silver cheaper to mine, produce and buy. For example, although gold costs more than 20 different types of precious metal to mine, eight metals are rarer than silver. For every ounce of gold mined, you only need 4 ounces of another metal (in ascending order: lead, copper, nickel and cadmium).
Silver is ideal if you want a haven investment for your portfolio rather than a diversifying investment. Since the price of gold is higher, it will take a proportionately greater drop in value for your investment to be eroded.
Thus, you are protected from a broader range of economic scenarios. Chances are, if you're looking at gold as an investment, you've already accumulated enough wealth to make it through an economic depression.
2. Industrial Usage
Gold and silver prices tend to move in tandem, but gold is a more reliable recession hedge. The numerous industrial applications of silver account for more than half of the metal's demand. It finds use in many fields, including electronics, vehicles, solar panels, medicine and industry.
Silver's importance in the industry means its price fluctuates with the economy. Silver prices are anticipated to rise if manufacturing speeds up. When the pace of trade slows, silver prices often fall. Gold prices tend to increase when stock markets fall. During the Great Recession (December 2007–May 2009), the S&P 500 plunged 37% while the price of gold increased by 24%.
Gold's price rises in an adverse market are fueled by investors, while the metal's limited industrial applications provide some buffer against economic stagnation. However, the S&P 500 has consistently outperformed gold over the long run.
Although the media often focuses on gold's price volatility, this precious metal is a safe long-term investment. During the 30 years between 1989 and 2019, gold's annualized volatility was marginally greater than the S&P 500's.
Due to its smaller scale compared to the gold market, the silver market is more volatile. Even though eight times as much silver is mined as gold, the whole silver market is worth only a fraction of the gold market since gold is now nearly 70 times more valuable than silver on an ounce-for-ounce basis.
More than 70% of the silver supply is created as a byproduct of mining for other metals, such as copper and gold, which makes the silver supply less sensitive to fluctuations in demand and hence increases the volatility of the silver price.
Silver's volatility makes it a potentially more attractive short-term investment than gold if you're looking to bet on price changes. However, gold is preferable as a long-term hedge.
The market favors gold because it is more liquid than silver. Gold is easier to buy, sell and trade. There are many more gold exchanges than silver exchanges.
The liquidity of metal can be quantified in several ways. How much it will cost you to buy or sell depends on the size of the transaction and how quickly you want your money back. For example, most of the world's gold is stored in vaults beneath the New York Federal Reserve building.
Silver is more volatile and, therefore, a less liquid market. Although it is possible to invest in silver through ETFs, silver coins and bullion, most investors buy gold bullion because it's easier to buy, sell and trade.
Ways to Invest in Gold and Silver
Gold and silver are attractive investments because they come in many different forms in which you can invest in them. Here are some ways to invest in gold and silver.
Buying Physical Metals
Gold and silver are tangible assets, unlike stocks and bonds, and may be stored in a Morgan Stanley brokerage account or a retirement account in the form of American Eagle coins. Although investors are free to take physical delivery of metals and keep them as they choose, Morgan Stanley will not be the custodian of the record.
However, there is a potential drawback to hoarding bars and coins. An investor may pay more than the metal's market price for gold and silver coins, for example, due to production and distribution markups. The cost of insurance and storage space must also be factored in.
Exchange-traded funds (ETFs) have risen in popularity as a means for investors to obtain exposure to precious metals like gold and silver without physically storing the assets. You can open a stock brokerage account to store your newly acquired shares. The fund's manager will collect the expense ratio and be liable for the costs associated with storing the actual gold or silver.
But buying an ETF does not provide direct ownership of the metals it tracks. Additionally, the reduced long-term capital gains rates don't apply to several precious-metal ETFs since they are taxed as collectibles.
Most investors will want to buy gold stocks based on their positive earnings growth projections and prospects for rising demand from the jewelry and electronics industries, as well as investors seeking to diversify assets in their portfolios. Mining companies produce the purest forms of gold and silver, which are then extracted through a series of stages at a low cost.
Gold and Silver Futures
A gold or silver futures contract is an agreement to purchase or sell an asset at a predetermined price in the future. Futures are available for most commodities, including gold and silver. Futures are traded on an exchange and settled in cash, so the buyer doesn't take delivery of the commodity being transacted.
Gold and silver futures are traded on the COMEX division of NYSE Euronext. Futures trading is much riskier than owning physical gold and silver as they are sensitive to inflation. However, they tend to have a lower entry point than investing in the metal itself, meaning investors can get exposure to precious metals at a lower price.
Futures are derivatives, thus, have no intrinsic value, so if a contract is not fulfilled at the delivery date, the buyer loses the entire amount they initially paid. Also, the interest rate charged on futures contracts is usually far higher than traditional loans, making them less attractive economically.
So, Which Metal Should You Invest In?
The decision between gold and silver is ultimately up to you based on their respective time frames and risk appetite. Although some investors focus exclusively on silver, others looking for an inflation hedge for retirement may allocate more of their portfolio to gold over silver because it's easier to buy and sell.
Gold is a better option for a retirement portfolio, whereas silver is better for investors who want to be exposed to price fluctuations in case of a market crash.
Top Five Precious Metal Investment Companies
We have compiled a list of the top gold firms for your perusal as you consider where to place your precious metals investment dollars. All the gold investment firms below have been evaluated on various criteria, such as customer service, precious metals offered, fees, security features and more.
When looking for the finest IRA provider, Goldco is a strong contender. The organization has been around since 2006, and its name has been respected in gold investing. They've earned an A+ from the BBB, an A+ from the Business Consumer Alliance and rave testimonials from satisfied clients.
Goldco's assistance in opening a new Precious Metals IRA or converting an existing retirement plan into an IRA is a popular service. You will be happy with your choice to open or transfer your IRA to Goldco for many years. If you are concerned about losing all of your wealth in the event of a stock market crash or a downturn in the economy, setting up a Precious Metals or Gold IRA is a good way to mitigate that risk.
Individuals can start opening an IRA with Goldco or transferring an existing account by filling out a short application form on the company's website. You need to provide the method by which you intend to fund the account, and a Goldco staff person will assist you in moving your money over.
Because of IRS rules, not all gold or silver may be kept in an IRA. For circulation, gold coins and bars must be at least 99.5% pure, while silver coins and bars must be at least 99.9% pure.
Augusta Precious Metals is a popular choice for precious metal buyers around the country, including those in New York, California, Texas and Florida. The firm has a customer service rating of A+ and a BBB rating of A+. They offer a variety of gold coins, silver bars and rounds.
Augusta Precious Metals can assist individuals with the purchase of their first investment in gold and silver. The company has a great reputation for customer service and provides top-quality products; you'll have access to a wide array of precious metals, including gold coins, bullion bars and rounds and silver coins.
Their customer service is five-star in every category, according to their satisfied customers. They have amiable and knowledgeable representatives who are happy to answer your questions about the company's products. Their representatives can find the best price for gold and silver and assist you in selecting which precious metals are best for your investment needs and goals.
American Hartford Gold is committed to helping Americans prepare for a secure retirement with an honest and fair approach. The firm has a BBB rating of A+, and its customers highly rank the organization.
American Hartford Gold has been operating for more than six years and is one of the top gold and silver dealers in the United States. They permit individuals to purchase gold sovereigns, kilo bars and bars in any amount.
The company offers an effortless way to get into precious metals investing with a single transaction that can be purchased online, with their toll-free phone number or via an in-person visit at their office.
The company has many products to choose from, offering the option of purchasing gold coins or silver bars. They have great customer reviews online and are known to be a reputable firm in the precious metals industry.
#4. Birch Gold Group
Birch Gold Group has a BBB rating of A+, and its customers are delighted with the organization's treatment of them after purchases. They offer a wide array of products, including gold coins and bars.
The organization has been trading in precious metals for more than 15 years and boasts a long history of operating with integrity and honesty. Whether individuals are considering opening an IRA with them or transferring an existing account, the company will work closely with you to make the process as seamless as possible.
Additionally, the company offers any precious metal in which you are interested. Some types of gold and silver available for investment include gold sovereigns, kilo bars and gold coins. The company prides itself on its customer service, and the staff always goes above and beyond to assist clients with their purchases.
#5. Noble Gold
Noble gold opened its doors in 2016 and is located in New York. The organization has a BBB rating of A+, and its customers are delighted with the organization. It aims to provide individuals with a precious metals IRA that offers high-quality service. This is a great choice if you have considered opening or transferring an existing IRA account to precious metals.
The company offers one of the easiest ways to get into gold or silver investments of any kind. The firm focuses on ease of use to purchase precious metals. The staff is apparent in their communication, and they can answer questions regarding your purchase so that you feel secure in your investment.
The company also offers a variety of precious metal options, including gold coins and silver bars. They offer silver bullion as well as gold sovereigns, which are coins backed by the government. It is also possible to purchase in any amount as long as the total meets minimum requirements.
Gold and silver are two of the most stable investment forms and are recession-resistant. Gold is often an appealing option to safeguard your wealth, while silver can help you diversify your portfolio.
Investors looking to add precious metals like gold and silver to their portfolios need first to decide how they want to invest in them. Many options are available; we recommend you buy physical gold bullion coins or bars and hold them yourself. You can also invest through ETFs or by trading in futures.