Since the price of both gold and it's cousin silver have risen approximately 250% and 320% respectively since 2001, the investing public has become interested. Unlike buying stocks, bonds, or even commodity contracts, buying gold and silver offers more challenges.
What Gold and Silver to Buy?
An investor can place money into precious metals in several forms, in different countries, with varying institutions, and with different tax implications. While this is not a complete list, most of the gold and silver investing vehicles fall into one of 5 categories:
- Buying gold and silver coins and storing them.
- Buying precious metal Exchange Traded Funds (ETF's)
- Buying digital gold from BullionVault, Goldmoney, Pecunix and others.
- Buying closed end gold and silver funds like the Central Fund of Canada (CEF).
- Buying gold or silver certificates of ownership such as the Perth Mint program.
Each of these methods has pluses and minuses depending on investing priorities.
1. Buying gold and silver and storing them means buying physical coins from a coin dealer.
If at all possible, buying locally for the first investment is the best method. Buying coins locally from a dealer establishes a relationship for possibly selling the coins back to the same dealer at a later date. Also, the convenience in knowing an established dealer locally that provides reasonable mark-ups over the spot price of precious metals is valuable.
Buying through the internet can be risky. The dealer will require funds before shipping coins. There have been several cases of dealers holding an investors funds for months. Among the best dealers for coins in large quantity is seekbullion.
After the first investment locally, later coins such as kruggerands, gold eagles, etc. can be purchased through the internet.
2. Precious metals ETF's bring the purchase of gold and silver to the stock market. Purchased and sold like a stock, ETF's make it point and click easy to buy and sell. Unfortunately, ETF's such as GLD for gold and SLV for silver have tax disadvantages that make them expensive to use. Also, ETF's have expenses so that each year the investor owns less and less precious metal. These investment vehicles are best for precious metal traders that buy and sell gold or silver for quick profit. Avoid ETF's in the precious metals area.
3. Digital money companies combine the ease of owning a stock with some of the security of owning the physical metal. Goldmoney.com stores metal offshore so governments cannot easily take the gold as happened in the U.S. in 1933. Bullionvault is for trading gold with low mark-ups or trading costs. Pecunix is a smaller company that has been active for several years based in Panama. A small portion of investing funds can be spread into digital money companies, but these are not main investment vehicles due to company risk.
Gold and Silver Portfolio Investment Vehicles
4. Precious metal mutual funds such as CEF are convenient because they operate similar to stocks. Shares buy and sell through brokers with keystrokes. While this is a reasonable solution for investing large sums, one problem is the premium the market places on CEF. At times this premium can be as high as 12% over the value of the metal the fund holds. For this reason there are better solutions that will be available shortly for investing more than $100k in precious metals.
5. Perth Mint sells gold or silver certificates through brokers world-wide. There has been controversy about whether the Perth Mint has the metal backing the certificates as claimed. Certificates throughout history have been the method for stealing funds from unsuspecting precious metals investors. Morgan-Stanley was sued and lost over falsely claiming to have stored silver for certificates. This is not a recommended method for gold or silver since such investments are primarily for insurance.
Choose the precious metals vehicle wisely and gold will be a bedrock for a retirement portfolio.
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