From time immemorial, people have invested in precious metals like gold and silver as forms of currency and lavish displays of wealth. This is because these metals act as a “store of value” and offer significant protection against inflation and the unpredictability of the global economic markets. Over the last few years, as gold and silver prices have flared, this interest has sparked again, driving many beginners to invest in them.
Gold and silver investment options for beginners
While a common misconception exists that investing in gold and silver means buying the physical metal, this is not the only option.
1) Gold and silver ETFs and mutual funds
Storage and insurance of gold and silver present a real hassle with physical metal. Exchange-traded funds (ETFs) and mutual funds provide an easy way out of this dilemma, shifting the risk of storage and insurance from individual investors to third parties.
- ETFs: These are collections of investments that track the cost of precious metals. Like normal stocks, ETFs are traded on the stock market.
- Mutual funds: These are fund options that invest in ETFs of precious metals like gold and silver or in the stocks of companies that mine, refine, or market gold.
Both these investment options offer investors a good way to diversify their portfolios and gain easy access to liquidity. They can easily be purchased and sold without the need to verify the shipments of physical metal. That being said, it is important to note that these aren’t direct investments and, therefore, may not return the exact price of the physical metal.
2) Gold and silver mining stocks
These are stocks of organizations involved in the mining, exploration, and production of gold and silver. The companies involved are judged by the quality of the metal and the feasibility of their mining operations. Their valuation is subject to change based on the market value of their deposits.
Here, beginners have the option of investing in two types of players—junior or major mining companies. The junior companies typically have a bigger prospect for uncovering major deposits, which could lead to bigger returns. That being said, they also tend to be more volatile than the stocks of major mining companies. Before investing in stocks, individuals must develop an in-depth understanding of the industry and take a quick lesson in pre-feasibility studies, reserve estimates, and valuation techniques to make a smart investment decision.
3) Gold and silver futures and options
Another great investment opportunity for beginners is in gold and silver derivatives, such as futures and options.
- Futures: These are contracts or agreements that promise to sell or buy gold or silver at a set price on a future date. Their value typically changes depending on the price of the precious metal. This is a way of making bets on the price of gold without having to own the metal itself.
- Options: With an options contract, individuals can purchase or sell a pre-set amount of their gold or silver futures at an established rate before the contract expires. These tend to be less capital-intensive, making them more affordable for beginners.
4) Physical gold and silver
This is the primary option for people to invest in precious metals such as gold and silver. Today, this purchase can be made online or in person.
- Buillon: This term refers to physical bars and coins of gold and silver. Bullions are often found as bars or coins.
a) Bars: The bars are made of 99.5% (or higher purity levels) of precious metal (gold or silver) and can weigh anywhere from an ounce to 400 ounces. The manufacturer typically stamps them to indicate their weight and purity.
Although bars present an attractive investment option, they also have the highest barriers. For investors to realize their gains, bars must be stored securely, insured appropriately, and sold in their physical form.
b) Coins: The alternative is gold and silver coins, which are typically much smaller than bars. Thanks to their aesthetic value, these coins walk the fine line between investments and collectibles. Their price can vary significantly depending on their beauty and market demand. - Jewelry: Many people buy jewelry as a form of “investment.” While it is a highly traded option, it is important to understand that the price of the final piece is often heavily marked up. Additionally, jewelry also brings with it concerns regarding safe storage and insurance, fraud, and lack of a recurring yield. That is why it’s best to consider jewelry as a collectible rather than an investment.
Tips for beginners to invest safely in gold and silver
Investments can be a daunting arena for many beginners. Having some expert tips on hand can help them navigate this new territory safely.
- Remember that there is no one size fits all. There is no best way to invest in gold and silver. Instead, one should keep one’s budget and long-term goals in mind before making an investment decision.
- Although gold provides an opportunity to diversify one’s portfolio, it may not be for everyone. It is typically purchased by those looking for a financial hedge against market risks.
- Opt for universally recognized gold, as opposed to collector’s coins.
- Only buy physical gold and silver from reputed dealers, such as those who are members of the American Numismatic Association (ANA) or the Industry Council for Tangible Assets (ICTA).
