Gold Investing Guide

Is buying gold and silver a good idea?

As we edge toward a post-pandemic world, many investors are looking for ways to prepare for future uncertainties. A solution for some may include investing in precious metals, such as gold and silver. But it is clear as we head towards a post-pandemic world, many investors are looking for ways to prepare for any future uncertainties. A solution for some could include investing in precious metals, such as gold and silver.

To varying degrees, both precious metals could provide a hedge in a potential economic and/or market downturn, as well as during any sustained periods of rising inflation. But understanding the difference between how these two metals are used, their economic sensitivities and technical characteristics can help you determine which metal may benefit your portfolio...

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 Silver Is More Volatile than Gold

The volatility in silver prices can be two or three times greater than that of gold on any given day. While traders and investors may benefit, such volatility can be challenging when managing portfolio risk. The volatility can translate to larger short-term gains, but it often carries a greater risk of downside.

Silver Could Be a Better Inflation Hedge

Historically, both gold and silver have made good solid gains when U.S. inflation is rising, in part because the increased costs of goods and services often coincides with a weaker U.S. dollar. Both metals are valued in U.S. dollars, so when the dollar falls in value, gold and silver typically rise because they become less expensive to buy using other currencies. Given greater industrial demand, silver tends to rise more than gold with rising inflation and a falling dollar.

Gold Preserves Wealth

The reasons for gold's importance in the modern economy center on the fact that it has successfully preserved wealth throughout thousands of generations. The same, however, cannot be said about paper-denominated currencies. To put things into perspective, consider the following example:

In the early 1970s, one ounce of gold equaled $35.9 Let's say that at that time, you had a choice of either holding an ounce of gold or simply keeping the $35. They would both buy you the same things, like a brand new business suit or a fancy bicycle. However, if you had an ounce of gold today and converted it for today's prices, it would still be enough to buy a brand new suit, but the same cannot be said for the $35. In short, you would have lost a substantial amount of your wealth if you decided to hold the $35 as opposed to the one ounce of gold because the value of gold has increased, while the value of a dollar has been eroded by inflation.

Gold Has Shown To Be a More Powerful Diversifier than Silver

Silver can be considered a good portfolio diversifier with moderately weak positive correlation to stocks, bonds and commodities. However, gold is considered a more powerful diversifier. It has been consistently uncorrelated to stocks and has had very low correlations with other major asset classes—and with good reason: Unlike silver and industrial base metals, gold is less affected by economic declines because its industrial uses are fairly limited.

Silver May Be More Tied to the Global Economy

Half of all silver is used in heavy industry and high technology which includes smart phones, tablets, solar-panel cells, electrical systems, and many more other products and applications. As a result, silver is more sensitive to economic changes than gold, which has limited uses beyond jewelry and investment purposes. When economies take off, demand tends to grow for silver.

Silver Is Currently Cheaper than Gold

Silver historically has shown to be much cheaper than gold, which makes it more accessible to small retail and private investors. For those who are just starting to build their portfolios, the cost of silver may make it a better investment choice.

Want To Invest in Gold and Silver?

Here's some options to consider...

Purchase and own your own physical form of gold and silver. It can be stored in a brokerage account, delivered directly to you or held in an IRA (see our Retirees IRA Guide)

Invest In Exchange-Traded Funds (ETF). When you invest in ETF's you gain exposure to precious metals by purchasing shares and keeping them in a wide range of accounts.

Purchase shares in mining stocks and funds from mining companies. Some investors see opportunity in owning shares of companies that mine for gold and silver, or mutual funds that hold portfolios of these miners.

Other ways to invest

  • Gold Futures
  • Gold Coins
  • Gold Companies
  • Gold Mutual Funds
  • Gold Bullion
  • Gold Jewelry