How to Invest in Gold and Silver

How to Invest in Gold and Silver

When it comes to investing, one of the most common places to invest is also seen as one of the most risky: the stock market. This is especially true if the stock market has been increasing for over a decade and is considered overvalued (like many consider it to be right now).

When investors get nervous, they usually search for other places to diversify their holdings so that they can protect themselves from a stock market meltdown. The most common place to diversify is in precious metals like gold and silver. But do you know how to invest in gold and silver?

Whether you are interested in diversifying your holdings or are just interested in learning more, there are plenty of ways that you can get started in precious metal investing.

This article will take a look at how to invest in gold and silver in a few different ways.

how to invest in gold and silver
Five hundred gram silver bars sit next to one thousand gram gold bars via Getty Images

Why invest in gold or silver?

Gold and other precious metals have long been viewed as a safe haven from stocks. They are completely separate from the stock market and their prices are influenced by supply and demand, not Wall St. Due to this, the price of precious metals usually fluctuates inversely with stocks (when stocks go down, gold goes up and vice versa).

There are several reasons that investors flock to gold, silver, or other precious metals during times of economic uncertainty. Here are a few of the most common:

Hedge against inflation

Gold and silver are both known for holding their value, especially over the long-term. The opposite is true for dollars, which slowly lose value over time due to inflation. To prevent this, investors will buy gold instead of holding dollars. 

History of increasing value

Despite being a good way to protect yourself from inflation or stock market crashes, gold actually has a long history of increasing in value. In fact, the price of gold in the 1980s was just under $600. Today, the price of gold is about $1,800. A gain of about 300%.

Gold and silver can act as a currency

Throughout history, gold has also been widely used as a currency. This means that if there was a serious problem with the dollar (or whichever currency you use) you could always use your gold to pay for things. 


If you are interested in learning how to invest in gold and silver or about why gold is considered so valuable then you can read more here.

Now that we have covered a few of the reasons why investors would want to buy gold or silver, let’s take a look at a few ways to buy it.

Gold ETF

A gold ETF (Exchange-Traded Fund) is defined as a fund that holds gold derivatives contracts that are backed by gold. This means that if you own a gold ETF then you are able to track the spot price of gold without actually owning any gold. In this way, it is essentially like buying a stock but for gold.

gold-etf

Additionally, “Gold ETF” is the common name for them but there are ETFs that track all sorts of different commodities. It is not just limited to gold.

There are pros and cons of owning gold ETFs, it all just depends on what your investment strategy is.

A few of the pros of owning a gold ETF are:

  • They are much easier to purchase than physical gold.
  • They can be bought or sold at a moment’s notice.
  • You do not have to worry about the purity of your gold or getting scammed.
  • You give your portfolio exposure to the price of gold.

A few of the cons of owning a gold ETF are:

  • You do not own the physical asset and your investments are still linked to financial markets.
  • You are relying on an intermediary (the fund) and are at risk of the fund getting in trouble or making a misstep.

If you do not want to buy a gold ETF then your other option is to buy physical gold.

Buying physical gold and silver

Another way to purchase gold is to buy the physical asset in the form of jewelry, coins, bars, or bullion. To buy physical gold, you will most likely need to visit a local store, order it online, or sign up with a brokerage who can buy it on your behalf. From there, you will have the responsibility of storing it yourself.

how to invest in gold and silver
American Gold Eagle Coins

However, if you do not want it stored in your house then you can also consider opening up a gold IRA. A gold IRA is a certain type of SDIRA (Self-Directed IRA) that allows you to store precious metals and other assets. The benefit of using a gold IRA are:

  • You are still able to get all of the tax advantages that are associated with Individual Retirement Accounts.
  • You can do a 401k to gold IRA rollover and use your 401k funds to purchase precious metals
  • Your gold will be held in storage safely in what is known as a depository (instead of in your home). A depository is just a safe house that is specifically designed to store precious items. There are depositories that specialize in gold IRA storage.

If you are interested in opening a gold IRA, then you will be required to work with an approved brokerage to make sure that all the necessary requirements are followed. For example, there are only four types of precious metals that can be included in a gold IRA (gold, silver, platinum, and palladium).

Your brokerage will help you follow all of the IRS guidelines. If you are interested in opening a gold IRA, check out some of the best Gold IRA companies.

Buying futures or options 

For the financially savvy, you can also consider buying gold futures or options. Gold options are options contracts that give the contract holder the right to buy or sell the metal at a pre-determined price.

gold-futures

Gold options are a good way to benefit from the price of gold moving in either direction. However, they are often a zero-sum game, meaning that you either make money or lose your entire investment. Due to this, they are probably a little excessive for the average gold investor and are geared towards investors that need extra protection for their portfolio.

We hope that you have found this article valuable when it comes to understanding how to invest in gold or silver. If you are interested in reading more, please subscribe or follow us on Twitter or Facebook to get alerted of new articles as we write them!

Teddy Stavetski
Teddy Stavetski

Teddy is a freelance business/financial writer who is currently working out of San Diego. He has a passion for personal finance and publishes articles on his blog about the perils of saving money (www.donotsavemoney.com). A University of Miami grad, Teddy studied marketing/finance while also playing 4 years on the football team where he was voted the team’s Most Valuable Walk-On. Aside from writing, Teddy loves playing the piano, reading, and traveling to random places.