Someone recently asked me how to get started investing in gold. Like silver, platinum, and other precious metals, investing in gold can be very lucrative if done correctly.
Historically Valuable
Some people believe gold and other metals are a safe investment because they have always been considered valuable. For thousands of years, civilizations around the world used their gold and silver as a measure of wealth and power. Today, it is still considered a benchmark in value and wealth. Even if the value of the Dollar or Euro falls, many believe gold will always be worth something.
Even until 1861, the United States government used a silver standard to ensure the value of its currency. At that time, you could trade in a dollar bill for its value in silver. Silver standards and gold standards. Through the Great Depression, many countries still used a gold standard to value their currency.
Fluctuating Prices and Risk
Like any investment, precious metals have a downside risk. Over the last ten years, gold has soared from less than $400 per ounce to a peak of about $1900 per ounce. However, if you bought in at the peak, you would have seen that value slide back to $1600 per ounce. That is a 15% drop in three months.
Some people blindly buy gold thinking it will go up forever. There are ads on the radio of famous personalities endorsing buying physical gold as an investment. I hope I am not the first to tell you that it might not work out and you can certainly lose money if you buy precious metals.
Over the last couple of years, gold has moved inversely to the stock market and economy. As news gets worst, gold rises. As the economy improves, gold falls. That creates a theory that you could use gold as a hedge to large losses in your portfolio, but there is always risk and speculation involved.
How to Buy
If I did not scare you off, you can buy precious metals several ways. The easiest (and my preferred method) is to buy an ETF that tracks the metal you want to buy. If you do buy into a metal ETF, make sure it has a high trading volume (good liquidity) so you can sell if you need to.
The most popular gold ETF is the SPDR Gold Trust (GLD) from State Street. You can buy and sell ETFs like stock and your investment gains and losses are treated similarly. A popular silver ETF is the iShares Silver Trust (SLV) from Barclays.
To purchase physical assets, you will need to go through a broker or dealer. In general, the transaction costs are high and you may have a tougher time selling for its actual value. You also have to worry about safety and insurance for physical assets, so I suggest avoiding this unless you are prepared to keep it for the long term in a safe deposit box at a bank.
Your Questions and Experiences
Do you have any questions about investing in precious metals that you want answered or stories to share? Please use the comments to let us know what you think.
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