Buying physical gold or silver as an investment is not always as straightforward as it sounds. Novice investors often get lost in a variety of options: “Should I buy minted bars or sovereign coins?” “Maybe that limited edition coin would be a good investment?”
Sensible investors evaluate bullion options by the price and premium on the gold spot price. But the premium is only one part of the equation. It doesn’t necessarily mean that you’ll get that premium back upon the sale.
Worse, there are unscrupulous dealers out there. They will try to trick you into buying numismatics and other collectibles that have a huge premium and won’t retain their value over time.
As a result, it’s essential to get an understanding of precious metals before dipping your toes into this market.
In this article, I’ll answer some of the most important questions you should ask yourself before buying precious metals.
What Is the Best Way to Invest in Precious Metals?
You can invest in precious metals by buying the physical metal like bullion bars and bullion coins or through financial products such as gold exchange-traded funds (ETFs).
Each method has advantages and disadvantages.
While investing in precious metals through ETFs sounds appealing due to its convenience, there are several key issues that investors need to be aware of in relation to this method of investment.
For example, if you invest in gold through an ETF, you don’t actually own the metal. You have no claim on the gold within the fund. This means that you cannot take delivery of the metal if the need arises.
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.
In this regard, buying the physical metal is a more sensible option.
- Investors can get exposure to precious metals in two ways: physical gold (such as bars and coins) or financial products (such as ETFs).
- With a precious metals ETF, you don’t actually own the metal.
Should I Buy Gold Bullion or Silver Bullion?
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.
The key advantage of silver is that it’s much cheaper than gold. Therefore, it’s more accessible to small investors.
- Gold is a better investment than silver for most investors.
- Gold’s price is less volatile than silver’s price.
Bullion Bars vs. Bullion Coins—Which Are Better as an Investment?
Bullion coins, such as Gold American Eagles, are the best type of precious metals for most investors. This is because sovereign coins are easily recognizable, easy to trade, and generally sell at higher premiums than bars. You could buy smaller bullion bars, such as a 1 oz bullion bar, but they tend to be harder to sell back and the transaction costs are higher.
For institutional buyers or those looking to buy very large quantities of precious metals, large bullion bars are a more sensible option, due to the lower premiums.
- Coins are the best way to buy precious metals for most investors.
- Coins are highly liquid and easy to trade.
- Bullion bars are more suited to large buyers.
What Are the Best Bullion Coins to Buy?
For North American investors, American Eagle and Canadian Maple Leaf coins—both silver and gold—are some of the best coins to buy. For investors in Europe, gold or silver Eagles or Austrian Philharmonics are good coins.
The South African Krugerrand coin is another excellent coin for investors. The gold version is minted from 91.7% pure gold alloy and contains one troy ounce of gold. It’s one of the most traded gold coins in the world.
Other good gold coins to buy that are reasonably liquid include the Australian Kangaroo coin and the English Britannia coin.
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.
- The best gold and silver coins for North American investors are the American Eagle, the American Buffalo, and the Canadian Maple Leaf.
- For European investors, Eagles or Austrian Philharmonics are excellent coins to buy.
What Is the Best Place to Buy Physical Precious Metals?
The best way to buy physical precious metals is through an online dealer that offers a buy-and-store program with non-bank London Bullion Market Association (LMBA) approved vaults.
Investors should avoid taking physical possession of their gold or silver unless they believe there is an emergency. It’s much safer to have your bullion stored in a secure vault. It’s also much easier to sell your metals that are stored in a secure vault because you don’t break the chain of custody.
Every investor portfolio should contain an allocation to precious metals. You’ve taken the first step toward ensuring your financial future by reading this primer on how to buy precious metals.
With all of the uncertainty in today's global economy, it has never been more important to diversify and add the security of physical precious metals to your investment strategy.
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Olivier Garret is the founding Partner and CEO of Mauldin Economics, a leading publisher of financial research geared to individual investors and institutions.
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