What is the best way to invest in Gold and Silver?

Investors use Precious metals to store value, hedge against economic disturbances, and diversify their Portfolios. Held long enough, these Investments may also appreciate in price, producing some hefty profits when sold. 

Gold and Silver are the most common Precious metal Investments. The history of these metals goes back thousands of years and they come in all shapes, sizes, and forms: bars, Coins, Stocks, ETFs, Trusts, even Cryptocurrencies.

But what is the best way to invest in Gold and Silver?

Let’s find out.

The Best Ways to Invest in Gold and Silver by Asset Type

Bullion

Government-minted Gold and Silver Bullion comes in two main forms: bars and Coins. You can purchase either through authorized dealers with the peace of mind that they meet specific purity standards (i.e., you know you’re getting what you paid for). Purchasing Bullion directly and taking personal possession of it means you can physically touch your Investment, which some investors prefer.

That said, Bullion has some drawbacks.

To start, sellers price Bullion higher than the metal’s spot price. These premiums cover mining, minting, and distribution costs. Once the Silver and Gold is in your hands, you’ll have to consider (and pay for) proper storage and insurance costs to secure your assets against loss and theft. When it’s time to sell, you’ll find that buyers expect a discount to spot price and that some types of Bullion are less liquid than others.

Then there are tax considerations. The IRS taxes most Precious metals at the collectibles tax rate, meaning you’ll pay up to 28% of your capital gains to the government.

Government-minted Bullion is usually eligible for IRA Investments which means you can use your tax-advantaged retirement savings to invest in physical Gold and Silver. With an IRA you can avoid the 28% tax rate and know that your metals are securely stored with an IRS-approved Custodian.

To learn more about Precious metal IRA accounts request an investor kit from one of the companies that offer these unique vehicles. For Investments over $50,000, Augusta Precious Metals is your best choice. If you have $25,000 to $50,000 to invest, Goldco is the best company available. Below $25,000, contact Birch Gold and they will take good care of you. 

Pros

  • Tangible ownership of physical assets
  • Available in a range of types, weights, and purities
  • Bullion is highly liquid

Cons

  • Dealers charge markups for purchase and then repurchase at a discount
  • Storage and insurance costs
  • Taxed at collectible rate (unless held in an IRA)
  • Physical metals don’t generate revenue

Bullion bars

Bullion bars make ideal assets for investors who want to quickly pump up their Portfolio.

You can buy Gold Bullion bars in varying weights and sizes ranging from a single gram up to a 400-ounce brick. Silver Bullion bars typically start at one ounce and range up to 1,000 ounces.

The exact price of Bullion bars – and whether you can include them in your IRA – depends on the specific metal, weight, purity, and mint of origin.

Bullion Coins

Bullion Coins provide another popular way to invest in Gold and Silver.
You can divide Coins into two basic groups: collectors’ Coins (“Numismatics”) and IRS-approved Coins. Both types of Coins come with the security of mind that you’re getting a certain purity, though their prices may differ substantially. 

Collector’s Coins carry additional value on top of the price of the included metal. Some of the highest-priced Coins were minted prior to the U.S. government removing Gold Coins from circulation in the 1930s. These Coins, typically referred to as “pre-1933 Gold Coins”, can attribute half or even more of their price to their current desirability as a collectible item. Collector demand is a variable factor that clouds the valuation of these Coins.

If you want to add Precious metal Coins to your IRA, you’ll have to be much pickier: the IRS doesn’t permit collectible or Numismatic Coins as retirement Investment assets. Instead, you’ll have to choose regular Bullion Coins and these Coins must meet strict IRS purity, weight, and country of origin requirements.

Most IRA-eligible Coins are minted in recent years and priced closer to their actual valuation. Their IRS-approved status means they’re more widely-circulated and thus more liquid. Examples include these Gold and Silver Coins: American Eagles, Canadian Maple Leafs, and Austrian Philharmonics. 

Bullion rounds

Unlike government-minted Bullion, metal rounds are privately-minted metal assets that aren’t considered legal tender. They come in several metal types, including Gold, Silver, Platinum, Palladium, and even Rhodium (the 5th Precious metal). Most rounds weigh between 1 and 5 troy ounces and are priced by metal weight and purity. Not all rounds are IRA-eligible. 

Pros

  • Several beautiful designs and metal types available
  • May be cheaper than government-minted Coins
  • Value determined by metal weight and purity
  • Widely available

Cons

  • Not considered legal tender
  • May not be IRA-eligible
  • Physical metals don’t generate revenue

Gold and Silver Stocks

Precious metal-related Stocks derive value from activities related to the mining, production, manufacturing, and distribution of Gold and Silver. These activities begin with exploration (i.e., prospecting), progress through multiple development stages, eventually move into production, and then culminate in refining and minting.

As paper assets, you can easily incorporate Precious metal Stocks into your Investment accounts. Doing so allows you to gain exposure to Precious metals and diversify your Portfolio without taking actual possession of physical assets.

There are, however, some drawbacks to investing in Precious metal stocks. To begin with, their prices tend to be volatile. They rise and fall along with metal prices, but investor sentiment and company success (or lack thereof) also affects their valuation. 

Also, there are more than 2000 companies involved in exploring for and mining Precious metals. Only a handful of these companies are (or will be) successful. Sorting the wheat from the chaff requires specialized knowledge so most investors in this sector should stick with well-known, proven companies.

While Stocks are riskier than buying physical Precious metals, they do provide another way to potentially profit from Silver and Gold. 

Pros

  • Diversify your paper Portfolio with exposure to tangible assets
  • May generate dividends and price appreciation
  • More flexible than taking possession of physical metals

Cons

  • Prices don’t directly correlate to metal values
  • Prices can be volatile
  • Must vet companies

Gold and Silver ETFs, Mutual funds, and Trusts

Exchange-traded funds (ETFs), Mutual funds, and Trusts are also “paper assets,” but like Precious metal Stocks, there’s often something real lying beneath the surface.

ETFs and Mutual funds are “basket” Investments. These vehicles purchase shares in a variety of Stocks – in this case, Precious metals mining, minting, and/or distribution Stocks. Then, they bundle those Stocks together in a basket and sell tiny pieces of the bundle as ETF or Mutual fund shares. 

Bullion funds or Trusts, take another route. These vehicles purchase large amounts of physical Gold and Silver Bullion and store it securely. Then, the Trust issues market shares worth a specific amount of Bullion. As Bullion prices fluctuate, so do share prices, linking value to tangibility.

ETFs, Mutual funds, and Bullion-backed Trusts are popular methods to invest in Precious metals without having to store and insure physical assets yourself. The costs incurred by these vehicles (management, storage, insurance) are spread across all investors, potentially lowering your overall cost burden.

It is important to note that some Precious metal ETFs and Trusts are taxed as collectibles, meaning you won’t benefit from lower long-term capital gains rates. You may also be surprised with an unexpected tax expense caused by the ETF or Trust selling assets.

Pros

  • Highly liquid and convenient
  • Can invest in small dollar amounts
  • May be cheaper than storing and insuring physical Bullion
  • Diversify your paper Portfolio with various levels of tangibility

Cons

  • Doesn’t give you access to physical commodities
  • You can’t claim or redeem shares for physical metal (the threshold for redeeming shares is very high)
  • Funds may stray into unrelated assets
  • Bullion-backed ETFs may be taxed at higher rates
  • Unexpected tax expenses caused by the Investment vehicle selling assets

Gold and Silver futures and options (derivatives)

Futures and options offer added leverage to Precious metal Portfolios. Unfortunately, the potential for larger profits also increases the risk of loss.

Futures contracts are standard contracts wherein a buyer and seller agree to trade an asset at a set price and time frame. When the contract matures, the seller will deliver the Precious metal, while the buyer hands over the cash. 

Most investors, however, don’t get that far. The bulk of futures profits are tied up in buying and selling the contracts themselves as prices fluctuate. Very few futures buyers take delivery of physical metal. For buyers that do hold contracts to maturity, sellers typically settle in cash and deliver the metal to a registered Depository.

By contrast, options on futures contracts give buyers the right, but not the requirement, to buy an asset under similar conditions. In this way, options contracts provide the same leverage as a futures contract without the risk of being forced to take delivery of the Precious metals.

Both types of derivatives are considered risky and speculative, and typically should be left to advanced investors. 

Pros

  • Can produce hefty profits
  • “Paper assets” don’t require storage or insurance costs
  • Relatively liquid

Cons

  • Involves significant financial risk
  • Values are highly volatile because of the leverage involved

Gold and Silver certificates (Promissory notes)

Certificates of ownership, also called promissory notes, are issued by Bullion banks like the Perth Mint. Each certificate promises the delivery of a certain amount of Bullion if the certificate is redeemed. Certificate investors, however, don’t technically own the Bullion backing the certificate. 

Certificates come in two styles:

  • Allocated (fully reserved) certificates set aside a specific quantity of Bullion that is stored in your name
  • Unallocated (pooled) certificates don’t correspond to specific Bullion – when you redeem your certificate Bullion is pulled from the mint’s operating supply of metal

Some investors buy certificates because they cut down on the burden of owning physical Bullion (storage and insurance costs, risk of theft, etc.). However, certificates are not risk-free: as glorified IOUs, they are not legal tender and they are only redeemable at the issuing mint. Additionally, Bullion banks don’t always have enough Bullion on hand to back their certificates. 

Pros

  • No responsibility to arrange storage and insurance
  • Lower markups to acquire metal
  • Provide another pathway to physical Bullion ownership

Cons

  • Bullion banks don’t always keep promised Bullion on hand
  • If the bank goes bankrupt, you may not recover your Investment
  • Banks may charge premiums over the spot price
  • May be required to purchase large minimum amounts
  • No direct ownership prior to certificate redemption

Digital Precious metals (Cryptocurrencies)

Digital Precious metals are fairly simple. Backers issue tokens on blockchains, with each token equivalent to a set amount of metal. Investors can buy these digital assets and rest easy knowing the value of their Investment moves in lockstep with metal prices.

Digital Precious metals are new and definitely not for everybody. They’re designed for “new age” investors who want to marry Precious metal fundamentals with the convenience and supposed security of blockchains. As incredibly new and niche assets, it’s important to fully vet any digital tokens before purchase. 

Several online marketplaces now permit investors to securely buy, sell, and redeem digital assets backed by Gold and other Precious metals. They strive to marry Precious metal fundamentals with the ease and modernity of blockchain-based technology.

Pros

  • Portrayed as convenient and easy to access
  • Brings the Gold standard into the modern age
  • The blockchain is typically touted as incredibly secure

Cons

  • Some investors think Bullion-backed tokens defeat the purpose of metal ownership
  • Blockchains have been hacked before
  • Can’t exchange your tokens for physical metals

What is the best way to invest in Gold and Silver?

With all the options available, identifying the best way to invest in Gold and Silver can be difficult. And truly, the answer depends on you, your investing objectives, your tolerance for risk, and the depth of your wallet.

At Satori Traders we make two general recommendations:

1.Take possession of some physical Silver and Gold. Store this metal where it is readily accessible when needed.

2.Diversify at least 3 to 10% of your retirement savings into physical Precious metals.

We believe the best way to invest in Gold and Silver is to have a little bit on hand and then trade some of your paper retirement assets (Stocks, Bonds, Mutual funds) for the security of physical metal.

You can purchase physical metal at your local Coin shop and this is the method that we prefer. Develop a personal relationship with the store and they will take good care of you. You can also purchase Precious metals online from Bullion dealers like APMEX or JM Bullion.

There is only one way to purchase and hold Silver and Gold using your tax-advantaged savings: a self-directed Precious metals IRA.

With a Gold and Silver IRA, you can invest in physical Precious metals using your tax-advantaged savings. Although you can’t touch the Bullion in your IRA until retirement, you can rest easy knowing it’s pure and safe in an IRS-approved Depository.

Here at Satori Traders we have researched the Gold IRA companies and identified three that meet our criteria. If you are investing $50,000 or more then Augusta Precious Metals is the best company available. For Investments of $25,000 to $50,000 choose Goldco. Below the $25,000 threshold you will find that Birch Gold is your best choice.

About Satori Traders

Hi, my name is Bryan Post and I love the shiny stuff - Silver and Gold.

I've been investing in the Precious metals and mining stocks since 2002 when I realized that Gold is the only real money on the planet.

Here on SatoriTraders.com I share everything I've learned about the metals, Financials markets, trading, Technical analysis, and the numerous games that central banks play with fiat currencies.

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