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How to invest in gold and silver

Gold and silver have always been part of the canny investor’s portfolio, but what are the different ways you can buy these precious metals? What factors drive up the price of gold and silver? And when is it a good time to invest? From how to invest, to whether gold and silver are actually good investments, here are some of the issues to be aware of when considering precious metal investments.

Are gold and silver good investments?

Investing in gold and silver may be a potentially good option because:

  • They provide diversification to an investment portfolio​.

  • They are typically not correlated to stocks or bonds.

  • They are a store of value, which is an alternative to holding cash.

  • Over the long run, stocks perform better than gold and silver, but during certain periods of market turmoil, gold and silver tend to outperform stocks, so precious metals can typically be used as a hedge against negative risk appetite in the stock market.

  • Gold and silver prices tend to increase in times of inflation (although not always).

  • Gold and silver can be easily bought and sold, especially gold and silver exchange-traded funds (ETFs)​​​ that are traded on the stock exchange. They are highly liquid investments.

What are the risks?

  • Gold and silver have underperformed stocks over the long run. Stocks returned more than six times what gold did​ over the last 100 years, according to Macrotrends.

  • Gold and silver prices can stay relatively flat for years at a time.

  • The long-term price history of gold and silver has tended to have flat periods followed by big surges and then big declines. Compare that to stock indexes, which have historically an overall upward long-term trajectory.

  • Gold and silver don’t pay dividends or interest. If the price isn’t moving up, capital would be better off earning interest or dividends elsewhere.

What are the different ways to invest in gold and silver?

There are several ways to approach silver investing or gold investing, including the following.

Gold and silver ETFs

These types of ETFs are held in trust by a fund manager and invest primarily in physical gold or silver assets. They can be traded just like any other equity investment on the stock exchange. You can buy and sell your share of the ETF from the comfort of your own home to increase or decrease your exposure to precious metals.

Physical gold and silver bullion or coins

These can be acquired through local dealers. There is typically a mark-up to buying physical gold and silver over the market rate since the dealer needs to make something for themselves. You own the bullion, and it is yours. Consider how and where you will store it if you plan to accumulate a lot.

Gold and silver forwards

A forward contract is an agreement to buy or sell a particular commodity or security at a specific time in the future. Therefore, because they have an expiry date, forwards are not ideal for long-term trades. However, they can be useful for speculating on short-term price moves.

Mining or streaming stocks

Buying shares in a company that mines or streams silver or gold provides an indirect way to invest in these metals. Mining stocks tend to be more volatile than the underlying metal. A 10% move in gold could typically equate to moves of 20% or more in mining stocks (up or down).

Buy mining stock ETFs

By investing in these, you will own a small piece of the mining stocks that the ETF owns. Because the ETF will have a portfolio of assets which gives you broad exposure to the gold or silver mining sector, if one stock goes bankrupt, it will be little impact on the ETF’s overall performance. This is why some investors prefer this method. It is one of the benefits of diversification. Learn how to invest in ETFs​.

Is now a good time to invest in gold and silver?

There is no guaranteed time when or if gold and silver prices will rise. That said, gold and silver will often – but not always – rise during periods of inflation. The best way to understand the potential price movements of gold and silver is to get familiar with the factors that move precious metals investments.

What are some factors that move their prices?

The price of precious metals are determined by supply and demand. The more gold and silver that is pulled out of the ground, the greater the supply. This will tend to keep prices lower. If less is mined, prices will tend to be pushed up. Websites like Statista provide yearly mining production figures.

But supply is only part of the equation. High demand for precious metals will drive the price up, while low demand will drive it down. Central banks around the world hold gold as reserves. Their buying, or lack of it, can strongly affect the market since they buy in such huge quantities. The amount of jewellery being manufactured and purchased will also affect the demand for silver and gold, in particular jewellery demand from India where gold plays a key role in their traditions.

Gold and silver are always priced in US dollars. Therefore, if the US dollar rises against other currencies, the price of precious metals will decline, and if the US dollar falls, precious metals will go up (all else being equal).

How to invest in gold and silver

  1. Consider your instrument. Two of the largest funds in the UK are the Invesco Physical Gold ETC (SGLD) and the Wisdom Tree Physical Silver (PHAG). The largest funds in the US are the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV).
  2. Look at the holdings. Consider buying ETFs with holdings in mining stocks if you prefer to gain exposure to precious metals through individual companies/stocks.
  3. Monitor the performance of your trades. Within your account, you can analyse which instrument is performing better and monitor the overall market for future decision making.


Gold vs silver: which is the better investment?

Looking at the performance of various gold and silver funds, gold has returned more over a long-term period, with returns of around 150% vs a 50% average return for silver. However, that may not hold true in the future. The gold/silver ratio shows that over time one may outperform the other. Therefore, they are both viable investments.

Is investing in gold and silver a good idea?

Gold, silver and other precious metals can help to diversify a portfolio, which typically includes stocks and bonds. Precious metal ETFs aren’t always correlated with these other assets and can therefore decrease overall volatility in the portfolio. Precious metals also often serve as a hedge against inflation since commodity prices often rise during periods of inflation.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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