When you're new to precious metals investing, your options can seem a little overwhelming. These five essential facts will give you the information and confidence you need to get off the fence and start protecting your buying power with precious metals.
1. "Paper gold/silver" and mining stocks aren't the same as having gold in hand.
There are a number of different ways to invest in precious metals and each has its pros and cons. If you invest in the stock of a mining company, then you are still exposed to the whims of the stock market, not just the price of the metal itself. If there's a stock major market selloff, or the mining company has a PR scandal, your stock price could suffer, even if the price of gold or silver doesn't drop.
Electronically traded funds (ETFs), known as "paper gold" or "paper silver" can be a somewhat more direct route to metal ownership, as the value of your investment will be tied to the spot price of gold or silver like it is when you own physical metal. But in an economic crisis, having a piece of paper or digital account that says you own the metal quite simply won't mean as much as having physical gold or silver in your actual possession.
2. Diversification within precious metals is as important as diversifying into precious metals.
If you decide that physical gold is definitely the route for you, then your next big decision is whether to go with bullion or Investment Grade Certified Coins. Bullion bars or coins are valued solely on their weight and the price fluctuates with the commodity price. Certified coins are valued based on their rarity and the investor demand for the coin, more like real estate or other rare tangible assets.
The main difference between gold bullion and certified gold coins for investment purposes is the value of a certified coin isn’t tied to the gold spot price. That makes them a good choice for investors that want an extra hedge against risk. In times when the value of gold or silver drops, an investment in certified coins can mean you still have an asset that maintains or goes up in value.
Both certified coins and bullion are worth considering as investments, but which is right for you is based on your primary investment goals. Most investors end up acquiring some of both – bullion for the high-risk/short-term part of the portfolio, and certified coins for the lower-risk/longer-term part.
3. The value of bullion is tied to three things: weight, fineness, and the spot price.
When you look up the spot price for gold or silver, what you’re seeing is the market value of a Troy ounce of the metal at that moment. If the metal you own is pure, then you can figure out the value of your investment by multiplying the spot price by the number of ounces you have. If you have metals that are less pure, say 14kt gold or sterling silver, then your investment is worth less per ounce.
Investors should plan on sticking with gold that’s at least 22k, and silver that is at least .999 fine. Anything less pure is good for making jewelry, but not worth it for investment purposes.
4. Physical Gold or Silver Must Be Stored Securely.
Anyone that decides to invest in physical precious metals should have a plan for storing it before making a purchase. Owning physical metals provides the benefit of not having to trust that someone else is taking care of it for you, but the flip side of that is that the responsibility of making sure your gold or silver is safe is entirely on your shoulders. You don't want to stack it up under your bed and hope for the best. If you don’t have space or would rather not buy a safe, you can use a safety deposit box at a local bank you trust or a secure storage vault from a company that specializes in commodities storage like the Texas Bullion Depository.
5. Not All Gold Sellers Are Reputable.
Unfortunately, some investors that don't research the sellers they work with find themselves the victims of scams. You can protect yourself from that fate by taking a couple of steps to make sure any commodities company you buy from is legit:
Who are they associated with?
Take the United States Gold Bureau for example. Our parent company, Lonestar Tangible Assets, is in charge of operating the Texas Bullion Depository for the State of Texas. The Comptroller's office has strict oversight and audits our companies on a regular basis.
Check how long they've been in business.
Research how long they've been in business. If they've been at it for a while, that tells you they’re experienced and they've had enough repeat customers and referrals to keep their business profitable in the long term.
A company that values educating its customers rather than just selling to them clearly has less to hide – you don't create scam victims with education. See how willing they are to provide general information on the industry, on best practices for selling and buying gold, and how helpful they are in answering your questions.
While this post provides enough information to help you make an informed choice on what type of gold to buy and how to buy it, we offer Free Phone Consultations to prospective investors to make you feel more comfortable and confident to make your decisions.