Should You Invest in Gold or Silver?

Silver and gold are precious metals that have been known to yield income for savvy investors, but there are a few things you should know before taking a risk.

Quick note before we start: I flipped gold back during the last great recession and it worked out pretty well. But, I sold all my holdings when it started going down from it’s all time high of being just under $2,000 dollar per ounce back in 2012. The real estate market was very undervalued at that time and I could not resist rolling that money over to do a fix n flip real estate deal. (I’ll speak about what that deal was like in a future article.)

Let’s review some of the basics of investing in gold or silver so you can get started on the right path, if you have an interest for it.

How Do I Get Started in Gold and Silver Investing?

There are several ways to get started in gold and silver investing. Here are a few to consider:

Physically Buying Silver or Gold

One way to invest in gold and silver is to physically purchase products like gold bullion’s or silver metals. (Gold and silver bars are also called bullion’s.) You can buy these metal pieces and store them for a rainy day, then sell them when values go up. This is what I did when I purchased my gold, I bought the bars from Apmex and stored it in a safety deposit box at my local credit union.

You can store them in your home, but you put yourself at risk for theft and natural disasters.

Quick tip: If you have small amounts of gold and silver, storing it at home may not be a major issue. But as you accumulate more, you will want to consider moving them to a place that provides security. 

Gold and Silver Funds (ETF’s) and Options

The easiest way to invest in gold and silver is to buy one or more exchange traded funds (ETF’s) also known as Gold Mutual Funds. But, some people people feel like this takes the fun out of investing in gold or silver, which is why I like physically collecting it so I can hold it in my hand.

Gold and Silver EFT funds are extremely liquid so you can buy or sell them within your brokerage account. This makes for an easy buying and selling process and simple portfolio re-balancing. Although this type of investing used to be expensive, it is getting more affordable as time goes on and they are becoming more common.

Charles Schwab or Merrill Edge are great places to open an account to get started.

One disadvantage of ETF’s is that in most cases they are not exchangeable with physical product so you don’t have any recourse if the market goes dark. The exception to this is the Sprott collection which stores their metals in bullion form that is redeemable for gold and silver.

However, EFT’s are recommended because you can sell them to earn income. Here is a brief summary of how you would go about doing that.  

  1. Identify an EFT that holds your desired metal (such as iShares Silver Trust SLV or SPDR Gold Trust (GLD) and also has liquid asset options. 
  2. Sell cash secured put options for shares of the EFT at a strike price that is lower than the market value.
  3. If put options expire without being exercised, keep the profits from the option premiums and sell the puts again.
  4. If the put options are exercised and you now own shares of the EFT, sell covered call options at a higher price than what you paid for the shares. This will be above market value.
  5. Continue selling covered calls until options are exercised and shares are sold.
  6. Start over with shares set below market value again. 

Basically, this process involves offering someone the right to buy the shares from you within a certain time frame in exchange for a cash premium up front. It’s a buy low sell high way of bringing in income.

Invest in Gold and Silver Stocks Through Miners and Royalty/Streaming Companies

Another way to invest in precious metals is to invest in silver and gold mining companies. This is advantageous because, unlike precious metals, these companies produce cash flow.

However, one disadvantage is that miners are levered against gold. So, when you invest in gold, if values go down, you can wait for the market to recover. 

Mining companies, on the other hand, could go bankrupt before the market rebounds.

Another downside is that mining companies are notorious for not being well managed. They don’t keep costs under control and they often make poorly timed acquisitions when precious metals are highly priced. They are also known for overpaying their CEO’s.

It is for this reason that you might want to look into streaming and royalty companies. These are better options because they tend to have better business management than mining companies and outperform the price of gold. They also pay their dividends so they have a higher return. 

How Much Should I Invest in Gold and Silver?

When it comes to how much you should invest in gold and silver, there really is no right or wrong answer. The answer will be different for everyone and a variety of factors will come into play. 

However, most experts suggest investing no more than 10% of your net worth excluding home equity value. That way you won’t risk losing too much if the market collapses. 

It is also not a good idea to invest in gold or silver if your income is extremely low.

Final Thoughts

While both gold and silver can make good investments, gold is a better bet for the average precious metal’s investor. It has a larger liquid market that is driven by investment and demand.

Silver, on the other hand, is more volatile and it has a stronger relationship to economic activity. This is because it has many industrial uses. Because of this, it can be attractive during down cycles when metal is cheap. Also, because silver is less expensive, it can be a good option for small investors. 

Gold and silver are more than just beautiful metals that make attractive pieces of jewelry; they are investments that can boost your income.