If youre new to the subject, want to buy gold and silver but aren’t sure of the best way to invest, your task can be made a lot easier if you arm yourself with a few basic facts and ask yourself the right key questions.
1 What are my reasons for investing
Your answer to this key question will determine how much and the way you chose to invest. Are you buying as a hedge (means of reducing risk) against inflation (rise in prices) and by doing so, protecting your savings, retirement fund and purchasing power. Or are you seeking speculative opportunities for profit via investments that may generate dividends.
Conventional wisdom is that you should build a core position in bullion first that you would be comfortable holding medium to long-term. You can store this yourself, have it stored for you or hold it in an IRA. Once you have a core position in bullion which is considered to be the ‘safe’ part of your portfolio, you may want to explore other more speculative options.
2 How much can I afford to invest
It’s probably wise to have an emergency cash fund in place to cover expenses for at least 3 months before you start to invest any meaningful amounts into precious metals. The price of gold and silver can fluctuate and you dont want to incur unnecessary losses by having to sell when prices are down to free up cash to cover an emergency. Alternatively you could move money you currently have in a retirement fund and hold certain gold and silver coins or bullion bars in an IRA, certainly an option worth considering.
3 What is my risk tolerance
There are risks associated with any investment including gold and silver. You need to feel comfortable with the amount you invest and determine how much negative change you can withstand and over what time period. This also applies to the How much should be in gold and how much in silverquestion. The older you are the more you should consider being weighted towards gold to avoid the volatile movements associated with silver and having to sell when prices are dipping.
4 Do I know the safest types of bullion to buy
This was covered in my previous article but briefly, any government minted coins, American Eagle, Canadian Maple Leaf or bars such as Credit Suisse Johnson Mattthey and Englehard are the safest choices. The coins are difficult to counterfeit and bars are stamped with the weight and make.
5 Do I know the difference between numanistic and bullion coins
Numanistics are collectors coins; they are bought for their rarity and design and consequently incur much higher premiums. Be very cautious if a dealer tries to sway you into buying numanistics when your original intention was to buy gold and silver bullion.
6 Do I know some basic precious metals terminology
Understanding just a few basic terms will give you the confidence to navigate various websites without feeling too confused by the jargon.
Spot price the price quoted if you want to buy gold and silver on that particular day.
Premiums – the price the dealer adds on top to stay afloat.
Gold to silver ratio how many ounces of silver it takes to buy an ounce of gold.
Troy ounce 31.103 g (standard ounce – 28.5g)
Moving Average ignores short-term price movement and shows the general trend.up or down.
Allocated account metal is stored for you in your name.
Unallocated account a promise is given to hand back metal or the cash equivalent.
7 What is my exit strategy
Simply put, this means you should have an idea of when and at what price you may want or need to sell your metals and to whom. Factored into this should be the speed and ease with which you want to do so.
However you decide to invest, take your time, explore the various options thoroughly, research each company carefully and gather information from a number of reliable sources, perhaps starting off small and slowly building a position that feels comfortable to you. The size of your budget should not put you off and it is certainly a wise precaution to take in today’s economic climate.