Investing in Precious Metals: Pros and Cons

Shiny things have long held an attraction for humans. One simply needs to look at our long-standing practice of using gold and silver as currency in their own right or as backing for paper currencies to see this.

Certainly, changes in the value of paper money could be caused by political and economic causes. The volatility of cryptocurrencies could increase significantly.

The savvy investor therefore questions whether it would not be better to build up a precious metals portfolio as opposed to the stock market.

The following section discusses the advantages and disadvantages of investing in precious metal stocks versus other prospective possibilities.

When considering whether to invest in gold or silver, there are aspects to consider:

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If you are new to precious metals investments, please read this page first:

Silver Could Be More Dependent on the Global Economy

According to the World Silver Survey, half of all silver is utilized in heavy industry and high technology, including smartphones, tablets, automotive electrical systems, solar-panel cells, and a variety of other products and uses.

As a result, silver is more susceptible to economic fluctuations than gold bullion, which has limited applications outside of jewelry and investment. When economies rise, so does the demand for silver.

Gold Is a More Effective Diversifier Than Silver

Physical silver serves as a valuable addition to a diversified investment portfolio because of its moderately low positive correlation with equities, bonds, and commodities. In contrast, gold is typically regarded as an even stronger diversification asset.

It has consistently been uncorrelated to stocks and has very low correlations with other key asset classes—and for good reason: unlike silver and industrial base metals, gold is one of the few rare metals that are less influenced by economic losses due to its limited industrial uses.

Why Consider Precious Metals

Gold Prices are Steady During Inflation

Precious metals demonstrate remarkable resilience in maintaining their value, particularly in the presence of inflation and various market variables.

This enduring quality stands as one of the foremost benefits of investing in these assets. Stocks and cryptocurrency prices can change on a dime.

Conversely, gold, silver, and other precious metals exhibit a propensity to preserve their value over time. Their status as physical assets further enhances their appeal in this regard.

They also profit from the fact that they are physical assets. Gold can be seen, felt, and touched, making it easier to determine its monetary value.

Investing in precious metals creates artificial scarcity.

Let’s face it, we’re unable to continually mine the earth’s interior for valuable metals. Precious metals, being finite resources, are destined to become increasingly scarce, guaranteeing their perpetual high demand.

This is one of the main reasons why precious metals are always in demand in the market. Precious metals investment with an Investment Retirement Account is indeed a wise choice.

Why Not Consider Precious Metals

Precious Metals are Expensive as an Initial Investment

You need to be ready to spend a sizable amount of money while investing in precious metals.

Gold and silver prices retain their worth very well, although they are also relatively expensive at first. This raises a significant barrier to entrance that other investment opportunities may not have.

You will be subject to High Capital Gains Taxes.

Unfortunately, precious metals are not accepted as legal money in the majority of countries. This means that to profit from this investing opportunity, you must sell your stores. The government may tax your earnings as capital gains if you do so.

Typically, the precious metals capital gains tax rate is 28 percent, with a notable disparity from the 20 percent tax rate which applies to other forms of investments like stocks.

When it comes to investing, precious metals offer an array of unique advantages compared to stocks.

These advantages include serving as a hedge against inflation, possessing intrinsic value, carrying no credit risk, offering high liquidity, introducing portfolio diversification, and facilitating straightforward acquisition.

What Are the Best Precious Metal Investment Strategies?

Investing in precious metals offers several viable approaches: purchasing the physical metal and keeping it in tangible form, investing through exchange-traded funds (ETFs), or investing in companies engaged in the precious metals industry.

To acquire gold and silver, you can explore various options such as reputable dealers, banks, or online platforms.

The process typically involves selecting a reliable source, making your purchase, and arranging secure storage or safekeeping.

The availability of both gold and silver in a range of investment formats is one of their appeals:

Unlike stocks and bonds, physical assets like gold and silver can be bought, either as American Eagle coins in a retirement account or as bars and coins in a Morgan Stanley brokerage account.

The metals would be held by a third-party depository rather than Morgan Stanley, however, investors might take physical delivery if they like.

Nevertheless, there are certain drawbacks to holding bars and coins. For example, because of the production and distribution markups, investors frequently pay a premium over the metal spot price for gold and silver coins.

It’s essential to factor in storage costs and potentially insurance expenses.

Exchange-traded funds (ETFs), on the other hand, offer a popular avenue for investors to gain exposure to gold and silver without the need to store physical commodities themselves.

In a conventional brokerage account, shares can be acquired and held. The fund’s operator is in charge of handling the costs of maintaining a physical supply of gold or silver as well as charging an expense ratio.

However, investment in an ETF does not provide investors with access to the underlying metals. Furthermore, some precious-metal ETFs are taxed as collectibles and hence do not qualify for lower long-term capital gains rates.

Mining Stocks and Funds

Several investors see value in owning shares of silver and gold mining companies or firms, as well as mutual funds that own portfolios of these miners.

Should You Buy Precious Metals? Let’s Go Over It Again

So, should you buy these tangible assets? Yes! Precious metals are a good investment compared to other forms of investments like real estate.

The value of precious metals keeps on rising. In general, the decision is yours whether opt to for a precious physical gold or not. Just make sure to consider the factors mentioned above.

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Tim Schmidt


Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started IRA Investing to share his expertise in using his Self-Directed IRA for alternative investments. His views on retirement investing have been highlighted in USA Today, Business Insider, Tech Times, and more. He invested with Goldco.