Gold & Silver
When I first came to the conclusion that I wished to purchase gold as an investment, I had no knowledge of finance and consequently, wasn’t sure what the “right” way to buy gold was.
As I mentioned in the section above, this subsection will be dedicated to those who are new to investing in gold and silver and will provide quality was in which to gain exposure the precious metals sector.
There is more than one way of purchasing gold and silver or gold and silver based assets. I recommend having exposure to more than one type of instrument, but here I will provide which ones that I prefer and how much of each I believe is an ideal amount to own.
Physical Gold and Silver
The most raw and direct way of trading in your dollars for a hard asset. Why physical metal? Physical metal is a store of value that no one can tamper with and it is also something that you can hold in your hand. No one can lie to you about on hand reserves, no fine print, just physical metal.
What are the upsides? In addition to its fine appearance, physical metals are the best investment for an inflationary disaster scenario. You can buy all the stocks and bonds you want but if the markets default and the dollar loses its value, physical gold and silver can and most likely would be used as money in this situation. The objective of this type of investment, is to protect yourself from the worst of the worst, though you can still (and many people do) trade physical gold to make money without the disaster situation in mind. The problem owning physical gold, is it isn’t as easy as clicking “buy stock” or “sell stock” as in the case of buying gold stocks or ETF’s. It can become complicated when trying to sell physical metal so consider that before buying. You have to find a buyer on your own, whether it be a futures broker, a coin dealer, or another individual investor.
When you buy physical gold and silver, you should think of it as savings account with a bank. When you cash your paycheck, you don’t get all 100′s out and then break it on a can of soda. Diversify. Buy 1oz, 1/2oz, 5oz, and 10oz coins. Remember to stay liquid. You want to be able to sell some if you ever get into a pinch so don’t go putting all your money into one big block of gold. And you always want to have at least some paper money on hand.
Gold and Silver ETF’s
There are Exchange Traded Funds (ETF’s) that carry gold and silver in their vaults that can be traded on Wall St. via a stock broker. The advantage here is that you get exposure to gold and silver without paying a very high price for it. Most ETF’s range from $10-$100 per share which will give you exposure with a smaller principal. Buying ETF’s is a much faster and easier way to get exposure to gold, though it isn’t quite like owning the real thing. Most ETF’s however will allow you to request delivery of the metal in exchange for your shares at any time.
Unfortunately, the risks on ETF’s can be high. Most ETF’s like SLV and GLD, have come under fire from investors who claim that they are poorly run and do not have the actual amount of assets as they claim. For example, the prospectus for SPDR Gold Shares (GLD) has loads of disclaimers including that they are not responsible for damaged or stolen goods, and the delivery does not need to meet London Good Delivery standards. They also do not allow private audits of their holdings. These types of things have led people to believe that they may be receiving gold-plated tungsten on demand. Others have suggested that the if the actual amount of gold holdings that the said ETF has is much smaller than the real amount, then that ETF may default if demand for physical delivery becomes too great.
Gold and Silver Mining Stocks
My favorite way of buying gold and silver although it also probably requires the most research. There are more factors that go into investing in gold miners. You have to look for things like quarterly and annual production, assets on hand, amount of mines in use, exploration projects, staffing, management, and geopolitical risk, etc. The good news is, it can be very easy for a company to be profitable when the asset they produce is hitting news highs every two or three months. I like mining companies because they make their operations and holdings available to the public and they have the advantage of being bought and sold by the click of a button. Out of the many types of mining companies that I tend to favor, I like the junior and small cap stocks the best. I believe that they have the most potential due to the fact that most of Wall St. is still too apprehensive to risk owning them yet. The gold market is consolidating due to the secular bull market in gold. Most large cap producers are finding it difficult to meet demand and have resulted in merging with and buying out smaller junior producers in order to feed the demand. This presents a great opportunity to get exposed to a small cap gold producer, as they are much more likely to be on the receiving end of a profitable buyout. Another reason why I like mining companies is because they offer a favorable amount of leverage to the spot price of gold. For example, if a gold miner can produce gold at $500/oz, and the price of gold is $1400/oz, then the margin for that miner would be $900. However, if gold rises 10% to $1540/oz, then the margin increases to $1040, which will equate to a 15.5% increase in share value of the said mining company.
My conclusion is this: If you are not interested in investing in stocks on Wall St. and using brokerages, you should just buy gold and silver bullion and continue to accumulate coins and bars. On the other hand if you are interested in buying stocks, you should probably own a decent amount of physical metal as well as some mining companies and ETF’s. Just make sure you do your homework before buying any of them, as they all have their own risks. I think the physical metal and the mining companies are the better investments and the ETF’s should be a risk play that you should only use capital to buy them with that you can afford to lose.
Where to Buy and Sell Gold and Silver
Buying physical gold and silver can be a pain when there are so many obvious scam artists and phony coin dealers out there. Posted below are some legitimate coin dealers that have reasonable prices and customer service.
I have done business with Apmex and they are efficient and their prices are solid. Out of all of the places to buy Gold and Silver, this is the one that I see at the top of everyone’s list that I talk to.
Above are a few others that I have not done business with but have heard good reviews from.
You may have also heard of Goldline or Monex on TV or on the radio. These companies as well as a few others have been accused of overcharging for numismatic coins and I do not recommend them to anyone.
A lot of talk goes on about buying gold and silver, but no one ever talks about what to do when the times comes that you want to sell. Gold and silver are liquid investments, but as I mentioned above it can still be tricky to find a buyer.
One way to sell your bullion is to buy it from an online dealer such as apmex or bullionbourse, and then sell it back to them later on. Yes, they will actually buy it back from you, and sometimes they will pay you more than the premium they are selling the coins for, as is the case with Silver Eagle coins. The setbacks however are that you must take care of the shipping yourself and the IRS will most likely ask for a 1099 because you are doing business with an institution. There could also be a capital gains tax. I have never actually sold any gold or silver to one of these companies so I cannot guarantee that things like this will not happen, but it is a very solid option in my opinion.
Another way is to simply find a buyer online. Craigslist or even eBay for example. I would recommend craigslist to avoid additional charges like shipping. Of course you have to watch out for scammers on both, but the good news is if you agree to sell it to someone on craiglist, you can get it done and over with on your own terms without any outside intervention.
Another way would be to go to a coin dealer or a jeweler. I wouldn’t recommend this way unless you needed cash fast because they most likely aren’t going to offer you any premium for your metal, but it is definitely a way to get it done.
Know the value of your investment and make smart decisions. Personally I like to sell it under the radar to avoid any speed bumps but it’s all up to you on how you choose to sell your gold and silver.