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Should You Invest in Gold or Silver?

Gold and silver prices per Troy ounce of bullion or of coins have gone up in the recent past, and if current commercials and advertisements are anything to go by then the prices of these precious metals are expected to rise even higher.

For many investors, this may seem like the perfect time to invest in gold or silver, but this is not entirely true. Read on to find out why.

There are two main reasons why people invest in gold and silver. First, they might anticipate that the prices will go up so that they profit from selling them afterwards. Otherwise, they expect that other investments in their portfolio will depreciate so they buy gold or silver as a hedge.

Still, how do you know when either of the two will occur? Of course there are the so-called “signs” for predicting the price movements of these precious metals but even these aren’t enough. You need to literally see into the future in order to really be sure; and we all know that is impossible.

Both silver and gold have practical applications. Most precious metals are lustrous, so they can be used to make jewellery. Precious metals can also be used in industrial processes. Other than this, a lump of precious metal is nothing more than a piece of metal and any value it gains is dictated by far more than just its existence. Due to factors beyond your control, a piece of precious metal in your possession could be gaining or losing value even as you read this article!

Compare this to any good business out there earning a substantial profit. With a profitable business, you will be able to control your profits to a certain extent. You can expand your business to serve more clients and make more money. And at the end of it all, when your business has achieved its goals, you can liquidate it and do whatever you want with the proceeds.

Precious metal prices might continue to increase; they might become more valuable due to their scarcity- more gold and silver mines might be depleted- then again, they might depreciate due to surplus supply if more mines are discovered. Can you predict that?

Or perhaps the prices will neither increase nor decrease. Maybe they will take a breather and gold or silver bullion worth $5000 will still be worth the same amount in 3 years’ time having only lost inflation. This is better than losing it all, right?

In the meantime, all those profitable business will be raking in more money every year in form of dividends, stock buybacks etc. and what will be the market value of your bullion or coin? Your gold or silver will continue gathering dust on the shelf, still illiquid and there is nothing you can do to influence its value.

So, if this is the case, why bother?

Even though investing in precious metals is a risky undertaking, it might be worth the risk at times. The prices of precious metals like gold and silver often tend to move in an antagonistic direction with the market, meaning if there is a repeat of the market crash experienced in 2008, gold and silver prices will definitely rise. Since you can’t count on this happening all the time, the next best option is to diversify your investment portfolio into categories like bonds, stocks, commodities and precious metals. This will help you reduce the risk of losing everything.

Buying Gold and Silver

Now that you know why you should by gold and silver, let’s take a look at how you can get exposure to these precious metals. To begin with, physical gold and silver can only be purchased in Troy ounces. A Troy ounce is a unit of apothecary weight equal to one twelfth of a pound or 480 grains. One Troy ounce weighs slightly more (about 10% more) than the normal ounce used to measure meat or milk.

When purchasing physical silver or gold, there are only two forms available, that is numismatic coins and plain bullion. Numismatic coins are precious metal coins which have collectors’ value therefore they are normally bought by experienced coin collectors. The value of these coins is dictated by things such as date of issue, rarity, current condition and even the mint that produced the coin.

To be a skilled coin collector, there is a great learning curve involved. Furthermore, you must have a reliable coin dealer to work with and trustworthiness is a scarce virtue among most coin dealers. If you are a novice investor looking to safeguard your wealth, it is prudent to invest in the bullion as it is simpler and relatively safer. Two main types of bullion products exist- bullion bars and bullion coins.

Gold and Silver Storage

It is important that you store your physical gold or silver in a secure place, a bank safety deposit box or a personal safety deposit box is a good place to stash your holdings.

If you chose to store your gold or silver in a bank safe, be sure to check the rating of your bank regularly to make sure it is at an acceptable level. You will want to relocate your holdings to a different bank in case the ratings start dropping. You check the rating of your bank at any of these sites- The Street.com or Bankrate.com.

If you chose to store your precious metals at home in a safe, then you should be keen on the kind of safe to buy and where in the house you will install it; the location you choose should be inconspicuous.

Delivery of Gold and Silver

Finally, you should always take physical delivery when buying gold or silver. Avoiding letting third parties hold your gold or silver on a permanent basis. The gold or silver you purchase is your legal property and should only be handled by you.

Be certain that you understand exactly what you are doing while investing in precious metals and you will do just fine.

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