Home Investment How to Invest in Precious Metals in 2021 (Gold and Silver)

How to Invest in Precious Metals in 2021 (Gold and Silver)

by Abdul Azeez

Gold and silver are not just examples of precious metals, but great tools for investments. They can be used as protective measures against future financial crises. Gold can be used as a safe-haven option for investors during periods of heightened market uncertainty, while silver has the potential to be an excellent speculation for increased value. Protective measures against future financial crises, safe haven for investors, excellent speculation for increased value.

How to Invest in Gold and Silver

There are three ways to go about investing in gold and silver. You can buy coins outright, you can invest in mutual funds or ETFs, and the third option is you can purchase shares of mining companies. Before we proceed, you should bear in mind that both gold and silver are not the precious metals that exist. We also have other precious metals like Rhodium, Platinum, Ruthenium, Iridium, Palladium among others.

As with most investments, there are advantages and disadvantages to each of these ways. Also, they’re not equal in terms of how they provide an investment return over time.

Below, we have the three methods explained;

preciouse metal

First Method: Physical Gold and Silver Coins/Bullion

The method of buying physical gold and silver coins/bullion as a way to invest is quite common among investors. Since physical gold and silver coins are not available for trade on any exchange worldwide, the only way to buy them is directly from a dealer.

As with all investments, before purchasing physical gold and silver coins/bullion, it is important to have an understanding of the asset you are buying, choosing the best option to store your gold and silver after purchase is very important. For some, it may seem an obvious answer to store your metal in a safe deposit box at your bank. However, if there are reasons this won’t be a good idea for you, then a very secure place/ storage system is advised. 

Pros of Physical Gold and Silver Coins/Bullion Method

Investing in physical gold and silver coins and bullion is a great way to store and grow wealth. Here are some of the major benefits of doing so. 

  1. It’s a hedge against inflation. As the dollar loses its value, the price of gold and silver will increase.
  2. There is a finite amount of it in the world, so the supply won’t increase. Can you say the same thing about the U.S. Dollar? 
  3. You have security against volatile markets. You will be immune to the risks of inflation.
  4. Lastly, you have the ability to choose what you spend your money on, and thus it’s fast becoming an easy way to diversify one’s portfolios.

Cons of Physical Gold and Silver Coins/Bullion Method

One of the problems with this method is that the dealer usually charges a very high premium over the spot price of the precious metals contained in the coin. That makes it expensive to own gold.

There are still some risks involved in purchasing these pieces. They are susceptible to the same kind of risks that any other investment deals. In order to invest in gold and silver in this way, you need to find a reputable dealer in order to buy gold and silver bullion or coins

Another con is that though gold and silver coins and bullion are considered the safest places to invest in, the biggest con is that it isn’t liquid. It means that you can’t convert it into cash on a whim, you need to find buyers and a good deal to turn it into cash. This might take time and not satisfy your mediate need.

Second Method: Gold and Silver ETFs or Options

There is no sure-fire way when it comes to investments, it’s always better when you have a hedge in place. When you buy gold and silver options, you’re making a promise with the seller to either buy or sell gold or silver at a certain price. When you invest in gold and silver exchange-traded funds (ETFs), you purchase a share of gold or silver that’s held in a vault somewhere. Although there are significant differences between the two, both are great ways to invest in the precious metal industry.

Pros of Gold and Silver ETFs or Options investment

By investing in gold and silver ETFs and options, you won’t have to worry about a steep drop in value if there is a recession, a large drop in stock, or a housing market collapse. It’s important to spread your investments, so you have a lot of security. If you have a lot of money to invest, options and precious metals are both great ways to do so.

Con of Gold and Silver ETFs or Options investment

The main disadvantage is the volatility in the price of gold and silver, which means that if you decide to sell them at a time when the price is lower than you bought them for, you’ll be in the red. If you’re looking to invest in Gold and Silver ETFs, there’s always the risk of someone stealing them. If you decide to invest in options, you have to be careful because their value can fluctuate.

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Third Method: Miners and Royalty/Streaming Companies

Investing in miners and royalty/streaming companies are great ways to make money in the market. Essentially, what you do is invest in a company that owns a mine or mine site. You will benefit from the production of the facility as well as the income from the sale of the extracted materials.

There are several companies to choose from. Each company has pros and cons, so you need to do your research before deciding on your investment. You need to evaluate a mining company’s financial statements to understand how it has performed in the past. If a company has a lot of debt, it will have a hard time paying its bills if something goes wrong. You should also look at the market price of the mine.

Pros of Miners and Royalty/Streaming Company’s investment Method

The biggest pro is that it’s easy to understand what you are getting into when you invest in these companies. Once they’ve done proper research, investors can eliminate the knowledge barrier between them and the investment targets. 

Con of Miners and Royalty/Streaming Company’s investment  Method

The biggest con of using this method of investing in Gold and Silver is that you have no physical asset, you have no ability to physically secure the metal, and this introduces another layer of counterparty risk since you do not actually own the gold or silver. You are reliant on the company being solvent and paying dividends/royalties as promised. If there is a collapse in the share price, you may be forced to sell your shares at a loss due to margin calls, and it may even be too expensive to sell the shares depending on the share price compared to the market value

Final Thoughts on How to Invest in Precious Metals

Now that you know the advantages and disadvantages of investing in gold and silver, consider adding a small position in these precious metals to your portfolio. No, they will not provide the same consistent returns as interest-bearing assets and stocks. However, they have the potential to outperform other investments.

Picture by Bullion from Pngtree

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