How to Invest in Gold and Silver

In times of economic uncertainty, traditional investment vehicles such as stocks and mutual funds can leave investors with inconsistent returns. Since 1970, gold has appreciated by 3,792% compared to the Dow Jones Industrial Average which posted a return of 1280% during that same period. With price appreciation like that, it is easy to understand why gold has continued to be a popular investment through the years.

One thing that makes precious metals an attractive investment is that there are many ways to participate in the market. Physical gold and silver can be purchased in bar form of various weights and sizes through major banks and coin dealers. This may be the purest form of investing in precious metals and involves actual ownership of the commodity.

Another closely related option is to purchase coins. The value is based on the weight of the bullion plus a premium for condition, rarity, and demand. This allows investors to combine an element of hobby with a strategy of seeking price appreciation. Coins and bullion bars can be a good way for entry-level market participants to get started without having to put up a large amount of capital right away. Since sizes as small as a gram can be purchased, it offers a flexible option that can be tailored to almost any budget. The biggest disadvantages to buying the actual physical metals are limited liquidity and the added responsibility of finding safe storage. Unlike shares of stock which can often be sold with a single mouse click, converting a gold bar or coin to cash requires finding a willing buyer on your own when you are ready to sell.

For those who are more comfortable operating through a brokerage, exchange traded funds such as the GLD (SPDR Gold Trust) of SLV (iShares Silver Trust) can be considered. The shares of these funds track the spot price of the underlying precious metal and move accordingly. They offer an alternative to holding physical gold or silver and shares can be traded just like any other stock or exchange traded fund. In addition to ETFs, shares or mining and exploration companies can offer an additional option for gaining exposure to metals. This can carry a bit more risk than a pure play on the spot price of a particular metal due to the addition of factors such production output, growth, expenses, and management.

Even though the historical price appreciation has been impressive, most financial professionals would caution against relying solely on precious metals to drive your portfolio. While there have been times when gold prices have outperformed the overall market, there have also been periods of under-performance as well. Throughout history, well-researched diversification has been proven to be one of the best strategies investors can use to generate consistent returns.