Investing in Precious Metals
Precious metals investing, in general, should be thought of as a long term investment. Gold and silver are the only true hard assets that stand the test of time.
Gold has been used for thousands of years in
trade and commerce due to its intrinsic value. Gold has also been used as both a commodity and
investment as well. The majority of gold that is used for industrial purposes is eventually recycled. Approximately 90% of all gold ever mined in the world is still in existence. This amount equates to
a cube approximately 60 feet on a side.
Silver, on the other hand, has also been used in many of the same ways with regard to trade.
However, silver in many industrial applications, is consumed rather that being recycled and used again. Tens of millions of ounces are being consumed every year. For the past several years, more silver has been consumed than has been mined. Many of these uses include solar cells, electronic circuit boards, photography, silverware and thermal windows.
The majority of silver is produced as a by-product of other mining operations such as copper, gold, lead and zinc mines. Only about 25% is produced from silver mines. Needless to say, the amount of silver produced depends on these other mining operations.
At the end of World War II the U.S. Government had a stockpile of over 2 billion ounces of silver. As of the year 2000 this stockpile has been either sold off to foreign governments or companies for industrial use.
Some great reasons to invest in precious metals include.
#1 Supply and Demand. Gold has always, and will always be, in low supply in relation to current demand. Gold has intrinsic value and is a great way to store wealth for future needs, whatever those needs may be. Also, saving money in order to buy gold and precious metals gives you a sense of accomplishment and security. To anyone that has practiced systematic saving of money, I’m sure you know what I mean.
Silver, with all of its uses and lack of recycling, is also in very high demand. In fact, above-ground stocks of silver are only a fraction of that of gold! Most people are unaware of this and see the price difference as a reflection of supply. Silver in my opinion is incredibly undervalued at this time. For a wealth of information on silver investing go to www.silver-coin-investor.com.
#2 Gold and Silver are the only REAL money. These metals have been used as money and for barter for thousands of years. That is not going to change any time soon.
#3 Gold and Silver are a great hedge against inflation. An example of this would be that 30 years ago three silver dimes (a value of 30 cents) would purchase a gallon of gasoline. By today's standards, the same three silver dimes (approximate value of three dollars) still purchase a gallon of gasoline.
#4 Gold and Silver are an exceptional store of wealth. You can carry enough gold in one hand to provide for basic needs your entire life.
#5 Gold and Silver are very easy to store. Only a small amount of space is needed to store a lifetime of wealth.
Many options for investing in precious metals are available. Some of these options include bullion coins, bars of all sizes, pool accounts, certificates and even mining stocks. It is my personal opinion that taking delivery of the physical metal once it is purchased is best for a few key reasons.
#1 If something catastrophic happens that is beyond your control, you have the metal readily available to you.
#2 You do not have to wait for the metal to be shipped to you in a time of crisis.
#3 If you need to sell quickly, both gold and silver are very easy to liquidate.
Another option for investing in precious metals is the multitude of pool accounts online. Basically, two types of pool accounts exist, unallocated storage and allocated storage. The main difference between the two is that an unallocated storage facility is not required to have the physical metal on hand. An allocated storage facility will have the metal in a secured vault.
When you purchase precious metals at an unallocated facility, and then request delivery, chances are the company will need to go out and purchase the metal at fair market value and ship it to you. If there is a shortage of the metal, at best you may have to wait awhile. This is a bit riskier than purchasing from a company that has the metal on hand. An upside to this kind of account is that most of them do not charge storage fees and have a very small spread between spot price and purchase price.
If you decide to go with an allocated facility, these companies usually charge a small storage fee per month. Also, most of the time the metal is stored in bar form. These COMEX bars weigh roughly 400oz for gold and 1000oz for silver. Compared to unallocated storage, allocated storage accounts have a few more fees to make up for the cost of insuring the metal in their vaults. Generally, they have a wider spread between spot price and purchase price as well.
The information on this page are the opinions of the author and should not be construed as investment advice.
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