Gold and silver investments have become an increasingly popular way of diversifying a portfolio. While both metals have gained value over time, each provides specific advantages depending on economic climate conditions.
Both metals offer investors protection against an economic crisis; but which one will best meet your individual needs?
Gold vs. Silver
Gold is an iconic precious metal that serves as an effective hedge against market and economic uncertainties, while also acting as an asset diversifier since it historically exhibits low correlations with stocks and other assets.
Before making a decision on investing in gold, it is essential to thoroughly explore both its benefits and drawbacks. A financial advisor can assist with helping determine whether this asset class should form part of your overall investment strategy.
Investors can purchase physical gold or silver bullion through private mints, online stores or coin dealers, with these precious metals typically carrying a premium above current spot price to cover production, transport and dealer fees as well as theft risks and storage space considerations. An alternative approach for investing in precious metals could include investing through exchange-traded funds (ETFs). ETFs provide investors with greater diversification when investing in precious metals assets.
History of Gold
Gold has long been used as a safe haven against inflation, market fluctuations and geopolitical uncertainty.
Over the last decade, gold has performed extremely well as an asset class, outstripping stocks and bonds when adjusted for inflation. However, during periods of extreme inflation such as 1970s’ America it may lag behind stocks. Therefore, allocating 5-10% to gold as part of your portfolio is highly advised.
Gold investing comes in many forms, from bullion bars and coins to jewellery and even art. When purchasing these products, a premium will be added based on production costs like production, packaging and distribution – typically, smaller products (eg 1g bars) will charge higher premiums due to economies of scale.
Risks of Investing in Gold
Gold is widely seen as a safe haven asset that tends to perform well during recessions and other forms of economic turmoil, and also acts as some form of protection against inflation due to being priced higher than fiat currencies.
Gold may be one of the most sought-after precious metal investments, yet its price can be more volatile than others due to frequent boom-and-bust cycles as investors search for safety in their assets during times of turmoil.
Gold investment comes with several risks, one of which is counterfeit products from less-than-reputable or unethical dealers. To reduce fraud risks when purchasing precious metals, only buy from companies certified by PCGS or NGC and always enquire as to their reputation and history before making your purchase. Furthermore, be wary of leveraged investments which involve borrowing against your purchase price with interest charges attached as you borrow money against it to fund it – this should also be taken into consideration before investing.
Benefits of Investing in Silver
Silver is an ideal asset to diversify portfolios with. With multiple industrial uses and more accessible to investors than gold, it also weighs less and costs less to store compared to the former metal. Furthermore, it does not tarnish easily either!
Gold tends to be more stable than copper due to demand that is driven mainly by industrial applications rather than speculation; thus making copper an effective inflation hedge, unlike gold which is more susceptible to currency fluctuations.
investors have the choice between investing directly in coins and bars of silver, investing through exchange-traded funds (ETFs) that provide exposure to precious metals without actually owning the asset, or purchasing shares of mining companies that mine these precious metals and receiving dividends that are taxed at the same rate as stock income. Physical metal purchases come with added risk due to theft risks and costly storage fees; buying ETFs provides investors with exposure without directly owning physical metals.
