Should I Buy Gold And Silver
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Mining stocks allow you to have leverage on the price of gold or silver, so a profitable miner will become much more profitable as the price of the metals rise. But if investing in individual stocks is too risky and time-intensive, you can buy an ETF that owns miners and diversify your stake.
How have gold and silver performed over time Despite their reputations, not all that favorably, says Robert R. Johnson, PhD, CFA, CAIA, professor of finance, Heider College of Business, Creighton University.
Investors thinking about investing in gold or silver should then carefully consider whether it really makes sense for them. It may well make sense in the short term or when specific imbalances exist in the respective markets for the precious metals.
Both silver and gold can function as safe haven assets, but gold tends to have a better track record over long periods of time. That said, over shorter periods the specific dynamics of each market end up being more important to their respective returns. Regardless of which you buy, remember that neither asset produces cash flow, so investors might be best served in the long term to take a buy-and-hold approach with a portfolio of profitable and growing stocks.
In contrast, the key advantage of buying physical gold (such as bars and coins) is that you own the gold. Furthermore, you own an asset that can be stored outside the financial system, which reduces counterparty risk.
Counterparty risk is the risk that the other party in an agreement will default or fail to live up to its obligations. When investors buy gold ETFs, they are relying on financial institutions to deliver on their obligations.
While both gold and silver have attractive features, gold is the better investment for the average precious metals investor. Gold has a much larger liquid market that is driven mostly by investment and jewelry demand. The price of gold is less volatile than that of silver, too.
Meanwhile, silver is more speculative and has a stronger relationship to economic activity. This is because silver has many industrial uses. As such, silver can be attractive during down cycles when the price of the metal is cheap.
Investors should stay away from sovereign coins from lesser-known countries. They should also steer clear of special edition commemorative sovereign coins. These coins are usually more expensive to buy and resell for less than the better known coins.
2022 has so far been the year of commodities. Oil, natural gas, wheat, soy, uranium, lithium, gold, silver, and base metals like copper, aluminum, and nickel have all caught the attention of investors. Commodities react to supply and demand. And demand for many commodities is rising faster than supply.
Commodities are real assets that can perform well during times of inflation. Gold and silver have long been seen as hedges against a recession. And copper's use cases have only grown in recent years, partially because of electric vehicle applications.
Royal Gold (RGLD 1.24%), iShares Silver Trust (SLV 2.33%), and First Quantum Minerals (FM 2.50%) are three ways to invest in gold, silver, and copper, respectively. Here's what makes each security a great buy now.
Scott Levine (Royal Gold): Breaking through the $2,000-per-ounce threshold last month, the price of gold is notably higher than this time last year, when it was priced at about $1,720 per ounce. Despite the metal's apparently high price, however, shares of Royal Gold, a leading royalty and streaming company, can be found in the bargain bin to the delight of value and gold bugs alike.
Unlike mining companies, royalty and streaming companies, like Royal Gold, are not directly involved in day-to-day mining operations. Instead, they can be characterized as financiers occupying a particular niche. In exchange for the up-front capital that royalty and streaming companies provide, they receive the right to acquire the mined minerals for a set price -- usually lower than the current market price -- or to receive a portion of the mined minerals. Although Royal Gold has interests in other minerals, including silver and copper, the yellow metal is the thing that's contributing most significantly to its coffers. In 2021, for example, gold represented 73% of Royal Gold's revenue.
Geopolitical tensions remain high, and the price of gold may very well rise in the coming weeks. But Royal Gold's value transcends a temporary spike in the market price of the yellow metal. The company has demonstrated that it consistently outperforms the price of gold, making it a compelling consideration for those looking to add some glitter to their portfolios.
Daniel Foelber (iShares Silver Trust): Through no fault of its own, silver's reputation has been somewhat tarnished in recent years. Silver's fundamentally strong investment thesis became gilded in the shimmer and shine of meme stock mania in 2021. It was then that silver briefly reached $30 an ounce as Reddit traders realized it had a surprising amount of short interest and looked to profit off that position. That moment has been dubbed the \"silver squeeze.\"
Since then, silver has been stuck in a range of roughly $20 to just over $26 an ounce. It's currently at the high end of that range, just under $26. And there's reason to believe it could break out from here.
Silver has many of the same advantages as gold. Silver tends to retain its value better than fiat currencies that can move based on the economic situation, monetary and fiscal policy, and the financial position of the sovereign nations they are backed by. Inflation weakens the buying power of a U.S. dollar, whereas silver and gold are more resistant to inflation because they're valued based on supply and demand, not the U.S. economy.
Aside from jewelry and silverware, silver also has practical use cases in industrial applications, electronics, medicine, photovoltaic technology used in the solar industry, semiconductors, and several other industries.
Instead of paying a premium to the spot price by purchasing silver bullion, one of the simplest and safest ways of investing in silver is through the iShares Silver Trust, which has over $14.6 billion in assets under management and only charges a 50-basis-point fee. The fund's sole purpose is to reflect the price of silver. Investors looking to mix in silver with some gold or copper mining stocks such as the ones Scott and Lee mention could consider a silver exchange-traded fund now.
Lee Samaha (First Quantum Minerals): Although best known for its copper assets, First Quantum is also somewhat of a play on gold and nickel. That's good news, because there's an investment case for all three metals.
The case for copper is based on long-term demand growth because of its use in the clean energy transition -- wiring in electric cars, renewable energy, and electrification. Meanwhile, supply challenges could emerge because of the difficulty of obtaining permits and uncertainty around the regimes in Peru and Chile. Furthermore, nickel prices soared in the wake of the war in Ukraine because Russia is one of the leading producers of nickel products. Finally, gold is seen as a safe-haven investment in turbulent times, and there's no shortage of geopolitical issues to worry about right now.
Within this scenario, First Quantum stands well placed with key assets in the relatively stable countries of Panama and Zambia. On top of that, the company is set to ramp up its production of copper, gold, and nickel over the next three years, and it has expansion projects in place in its key assets. First Quantum Minerals is an excellent way to play a positive view on the outlook for long-term copper prices, nickel, and gold.
Gold and silver prices move significantly year to year, so the best way to get a general gauge of the prices of these metals is to look at semi long-term charts. Below we have the gold and silver price charts dating from January 2000 to the time of this writing (February 15, 2012):
What we can take from the above charts is that gold, as of late, has been significantly more expensive than silver. This price relationship between gold and silver exists despite the fact that there is actually much more above-ground gold in existence than above-ground silver; current estimates place above-ground gold at 5 billion ounces and above-ground silver at 450 million ounces ( _vs_Gold.html).
The ratio between the gold and silver spot prices is called the gold/silver ratio, and is often used by investors to determine if either of the metals is undervalued as compared to the other. The gold/silver ratio measures how many ounces of silver you can buy with one ounce of gold. Below you can see the 10-year gold/silver ratio chart:
Both gold and silver are extremely liquid assets, viewed by all as a valuable commodity, and even viewed by many as an actual currency. Investors can buy physical gold and silver online 24/7/365 from JMBullion.com, as well as countless other precious metal retailers.
The final topic we will discuss is the difference between the retail markup on physical gold and the retail markup on physical silver. As a precious metals investor, you always want to buy metal as close to the current spot price as you can, else the metal price has to increase significantly just for you to break even.
Now, buying metal exactly at the current spot price is all but impossible for an individual investor, as the companies you buy from make their money on their buy/sell margins, so they have to add a tiny premium just to stay in business (with the exception of 35%, 40%, and 90% silver coins, which we discuss in our next article). However, by selecting the right products and quantities, you can make sure the premium you end up paying is as little as possible. 59ce067264
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