Gold and silver are two of the most commonly invest commodities in the world. Both have their own unique set of pros and cons, which is why it can be tricky to decide whether or not to invest in them. In this article, we will take a look at the pros and cons of gold and silver so that you can make an informed decision about whether or not to invest in them.
Both Gold and silver are often seen as a safe investment because it has a long history of being used as a currency and store of value. Investing in gold and silver can be a great way to diversify your portfolio–gold and silver are uncorrelated with the broader market. If you are a collector, adding gold and silver coins is a great way to expand a solid coin collection.
We’ll start with the list of Cons for gold and silver and move into the Pros later in this article.
Cons of Gold and Silver:
1. Volatility. Gold and silver can be volatile, and the price of gold is often driven by investor sentiment rather than fundamentals. Silver, on the other hand, is a more volatile commodity. The price of silver is often driven by industrial demand, as it is used in a variety of industries. However, this also means that silver is subject to greater supply and demand risks. Silver is also not as scarce as gold, which means that it may be more susceptible to inflation.
2. Storage. Gold and silver can be expensive to store. They also require special storage conditions. Personally storing gold and silver require a safe and no telling anyone about a personal collection. Storing with a depository incurs fees. Many of the best online bullion dealers also offer storage. However, many investors want to diversify their broker and storage firms for additional risk reduction.
Buying a gold ETF or silver ETF takes care of storage for you. When you invest in a gold or silver bullion-backed ETF, you pay an ongoing commission. This commission is used in part to pay for storage. You don’t get a bill from your bank or storage facility, but the fee is charged just the same. The fee is usually not onerous.
3. Transaction & Transportation Costs. Buying and selling gold and silver can be expensive. There are bid-ask spreads, shipping costs, and dealer premiums. Bullion bars will have less premium than silver coins or gold coins.
4. Liquidity. Liquidity, or the ability to buy or sell and the amount of buyers or sellers available. Liquidity in the gold and silver markets depends on the type of gold or silver if you want to buy or sell coins. In terms of liquidity, from highest liquidity to lowest liquidity: ETFs, private storage, personally storing gold or silver coins, and bullion bars.
Gold or Silver ETFs have the highest liquidity. It’s instant to buy or sell in your personal brokerage account. There are some drawbacks to ETFs, so don’t make the decision to use ETFs solely because of liquidity.
While not as high as an ETF, bullion coins stand in the “middle” of the liquidy scale. If you want to sell 1-10 oz, then selling 10-1oz coins is possible when carving off 10 oz off a 100 oz bullion bar isn’t.
Lastly, is the least liquid form of gold and silver: bullion bars. In general, 100 oz bars have lower liquidity compared to a 10 oz bar–and much lower liquidity than ETFs or coins. It’s difficult to unload a large position quickly. The lack of liquidity can work for you or against you. If you’re patient and don’t mind holding your position for the long term, then low liquidity may not be an issue.
5. Lack of Income. Gold and silver don’t provide an income like stocks, bonds or real estate. They are what’s known as a store of value. You’re buying gold or silver today in the hopes that it will be worth more tomorrow.
That is both a pro and a con. Because other financial assets are valued based on the income produced and the risk-free rate (Treasury bonds), that means gold and silver aren’t tied to changes in interest rate. While bonds, stocks, and real estate fluctuate based on the returns on T-bills, Gold is uncorrelated with the broader market. This gives you as an investor a way to enhance returns for a larger portfolio of diversified assets.
Pros of Gold and Silver:
1. Hedge against inflation. Gold and silver have been used as a form of currency and store of value for centuries. They are seen as a hedge against inflation, as their prices are often volatile when economies are struggling.
Gold is also a good hedge against currency fluctuations. When the value of paper money falls, gold usually rises in value. This makes gold a good choice for investors who are worried about inflation or currency fluctuations.
2. Safe haven asset. Gold and silver have been used as a form of currency and store of value for centuries. This means that they have a long track record of stability and are less likely to be affected by economic or political turmoil. This makes gold and silver a good choice for investors who are looking for a safe haven asset.
Investors often turn to gold and silver when they are worried about the stock market or the economy. This is because gold and silver are seen as safe-haven assets. This means that they are less likely to be affected by economic or political turmoil. In fact, in times of economic stress, gold and silver are the assets that generally begin to perform best. Investing in gold and silver can be a good way to diversify your portfolio and protect yourself from market volatility.
3. Tangible asset. Gold and silver are both physical assets. You can hold gold in your hand, and many people view it as a more secure investment because it is a tangible asset. If you hold it, you own it. It doesn’t require faith or trust in anyone to maintain its value. Physical gold or silver can’t go broke. Metals can’t go bankrupt. There’s no paper contract. Metals are financial assets that aren’t someone else’s liability (like bonds).
Metals as a tangible asset that don’t require toilet replacement, don’t require feeding or fertilizer; they don’t require maintenance.
If you look back at the financial collapse of the great depression (1929), the Tech bust (2001), or the housing bust (2005), gold and silver never dropped to zero–unlike many companies during those periods. It’s this unique aspect of gold and silver that give security to an investor’s portfolio. It’s the diversification away from assets that can–and do–go to zero that investors can buy into the uncorrelated asset class. This is what makes gold and silver worth adding 8-10% minimum to maximize returns over the long term.
Wrapping Up
Gold and silver have been used as a form of currency and store of value for centuries. They are seen as a hedge against inflation, as their prices are often volatile when economies are struggling. Gold is also a good hedge against currency fluctuations. When the value of paper money falls, gold usually rises in value. This makes gold a good choice for investors who are worried about inflation or currency fluctuations.
Investors often turn to gold and silver when they are worried about the stock market or the economy. This is because gold and silver are seen as safe-haven assets. This means that they are less likely to be affected by economic or political turmoil. In fact, in times of economic stress, gold and silver are the assets that generally begin to perform best.
Gold and silver are both physical assets. You can hold gold in your hand, and many people view it as a more secure investment because it is a tangible asset. If you hold it, you own it. It doesn’t require faith or trust in anyone to maintain its value.