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Investing In Gold And Silver


The following is a guest post from Cindy who writes at Midlife Finance.
After my post on ways to hedge your bets for expenses and investing, one commenter asked about investing in gold. Was it a good option for safeguarding your money?

Well, yes…maybe.

First, it’s necessary to decide how you want to deal with these precious metals. (I’m adding silver into the discussion, though other metals, like platinum and copper, are also significant.) People have been using them for coinage and ornamental purposes for thousands of years; early civilizations like the Sumerians and Egyptians seem to have focused primarily on gold for jewelry and ornamentation.

investing in gold and silver

Weighing your choices

Gold is measured by troy ounces (12 troy ounces to a pound). It’s extremely heavy for its volume; ‘specific gravity’ gives it a weight more than 19 times heavier than water. (Gold-panning miners rely on this, looking for gold in river bottoms, where it would sink and become lodged in crevices.)

Silver is also weighed by the troy ounce. Sterling silver is 92.5%, or 0.925 pure. ‘Fine’ silver is typically 99.9% (0.999) pure, though some countries’ silver can vary — Mexican silver, for example, can be 95% (0.95) and British silver 95.8% (.958), instead. (Look for the markings to help you determine this on jewelry — a Google search on ‘silver markings’ will produce a number of lists and tips on how to do this.)

When gold is used in jewelry, it’s measured by the karat; a word related to the carob seed, which was used to balance scales in the Orient. (‘Carats’ are for measuring gemstones.) Pure gold is 24 karat; however, most jewelry in Europe is only 14 or 18 karat. In the Middle East, India and Asia, however, jewelry can measure 22, 23 or even “chuk kam,” nearly 24 karat.

How to invest

Gold is sold as bullion (bars) and coins. Popular choices for the latter are the American Gold Eagle, South African Kruggerand and the Canadian Gold Maple Leaf. Each of these modern coins weighs an ounce, and as of this writing, are selling for approx. $1400-1600 each. Silver is also sold as bullion and coins, though many of the coins seem to be more commemorative than legal tender.

There are other options. You can pay a company to ‘hold’ your gold. (They store it, you get a certificate saying you own it.) You can buy stock in mutual funds or ETFs based on gold, silver and other precious metals; short and long-term futures; or stock in companies who mine or process ore. (Look for an IPO if you want to get in on the ground level, though that’s not necessarily a guarantee of overall value.) Or, like Robert Kiyosaki of Rich Dad, Poor Dad (affiliate link) fame, you can buy your own mines. (He currently owns gold, silver and copper mines, as well as shares in other mining operations.) Interestingly, silver mines are less common than gold ones; in fact, silver supplies have decreased more significantly over the decades than gold, in spite of gold’s higher price.

And of course, there’s always jewelry. Some regions, like Taxco, Mexico, are famous for their beautifully heavy silver bracelets, necklaces and rings. (‘Pawn silver,’ a term for antique silver-and-turquoise squash blossom necklaces, bracelets and other jewelry from the American Southwest, is also highly valued.) The gauge, of course, is purity and weight. A typical gold ring, for example, generally weighs from 3-7 ounces, depending on how much gold is actually in the ring. (However, you would probably only get 25% or less of its ‘spot’ value, if selling to a ‘scrap gold’ firm.)

Some cautions

Precious metal prices fluctuate, depending on what’s happening in world and financial events. Gold’s ‘spot’ price, as of this writing, is $1385 USD per ounce, with coins slightly higher. (It dropped to $1377 the night I finished writing this article.) That price is an improvement — gold has taken a beating in recent months, 10-18% or so less than what it valued 5 months, or even a year ago. (At least 6% of that loss has come just in the last month alone.) Experts are explaining the drop by mentioning a stronger U.S. dollar, the lack of inflation, consumer price indexes dropping, etc. as well as a huge recent “sell-off:” investors who’ve cashed in short and long-term futures contracts. (So many occurred that these were being resolved in cash, without a bit of precious metal exchanging hands.)Who knows for sure.

investing in silverSilver’s ‘spot’ price is much less than gold’s – ranging from $22.50- $25 an ounce in recent weeks. It also has dropped in recent months. Some experts suspect that its price is being kept artificially low. (By large banks, they dramatically charge). There have been people who attempted to corner the market on silver, most famously the Hunt brothers in 1980. (They failed, and nearly bankrupted themselves in the process.) At least one expert argues that it will change more quickly:

“Silver should be trading at 128 dollars an ounce, adjusted for inflation since 1980 and probably would be except for the manipulation of the silver priceAt that time silver was hovering around the 18 dollars an ounce mark. Now it is…rising, and the possibility of reaching the 128 dollars an ounce level is becoming increasingly real…In addition silver production is not expected to grow in 2010- 2012 with the supply side of the coin expected to remain bullish.”

Silver is also extensively used as a component in manufacturing, including computers, making its pricing even more interesting.

Helpful tips

I’m not an investment professional — but these have consistently worked for us. Others are worth considering. (Disclosure: I do own stock in a Colorado gold mine – which has steadily gone down. Husband regularly invests in junk silver – which has been doing great.)

*Gold and silver are traditionally considered a financial hedge. In the past, when the stock market was down, precious metals’ prices were apt to go up. (This hasn’t always happened in recent months, but in the past 30 years, gold and silver has generally held or increased in value.) At the very least, investing in either one will help round out your investment portfolio.

*Some countries are stockpiling. India’s been buying and holding record amounts of gold – and now China is following suit. This can partly be explained by both countries’ appetite for gold jewelry; in India, it’s an integral part of the marriage process. (“No gold, no wedding,” or so the saying goes.) Is something else going on here? It bears watching.

*Purchase modestly. Like stocks, you’re generally better off buying a measured amount over time, rather than one big purchase. Prices tend to fluctuate, and this gives you a better chance of catching the low prices, along with the higher ones. (I like Warren Buffett’s rule of thumb: “Be greedy when others are scared.”)

*Invest in currency you could spend, if you had to. Junk silver coins are still moderately priced, and not too difficult to find. (More about this here. ‘Junk,’ by the way, refers to the coins’ melt, or bullion value, not face value.) Look for half dollars, quarters and dimes minted in or before 1964, when coins were still 90% silver. These include Kennedy half dollars, Washington quarters, Mercury and Roosevelt dimes. (Kennedy half-dollars from 1965-70 have 40% silver content.) Ebay and other sites are full of dealers offering bags or rolls of junk silver; just make sure you know what the melt price is before you buy. (Coinflation.com is a good place to check.)

*Antique coins are an interesting possibility. One Ebay seller currently has a 1913 US ’10 dollar’ gold piece priced at a little under $850; Morgan silver dollars from the same dealer ranges from $65 (worn) to $260 (‘extra fine’). (A decade or so ago, I bought a handful of Morgan silver dollars for $8 each from a dealer — wish I’d gotten a bagful!) Excellent condition (‘grading’), date and rarity can push prices up even more. 

*Coins from shipwrecks (the famous ‘pieces of eight’ and such) are a romantic way to invest. Their provenance does increase the price, compared to the metal ‘spot’ value — but they’re also collectible. Case in point: the sidewheel steamer S.S. Central America, which sank in 1857, along with a full passenger list and 3+ tons of gold –an estimated third of California’s Gold Rush output for that year. (Its loss triggered a huge financial ‘panic’ that affected the entire country.) When the shipwreck was discovered and salvaging began in 1987, it yielded an estimated $100-150 million in gold, ranging from coins and bars to gold ore. A number of the coins were rare or unique examples from California mints, preserved in remarkable condition. (The company is currently marketing new reproductions of some of these old coins in 2.5 ounce versions, by melting down some of the Gold Rush bullion.)

*Keep your eyes open. Reading websites from a variety of sources, U.S. and non-U.S., are a good way to compare opinions, statistics and research. (The London Market Bullion Association is a good place to start, especially their prediction pages.) Read any articles you can on investing in precious metals — especially from sites and publications that are not actively marketing it.

*Don’t just stash away your investment – enjoy it. Gold earrings and  a graceful chain complement a pretty ear or neck. (A coin is an unusual and oft-appreciated gift too, especially when its value is emphasized.) Why not use or wear some items on special occasions? Brides in India do it — and so can you. 

invest in gold and silver

Disclosure: Affiliate link to Amazon included in this article. We make a little commission if you buy something from Amazon after following the link.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 16 comments… add one }
  • Mike May 20, 2013, 8:01 am

    I thought about hording more the older coins from around the world in addition to investing in the big three metals-Platinum, Gold, and Silver. One has to keep in mind that platinum is even more valuable than gold, so it might be worthwhile to have some of one’s money tied up in that metal.

  • Pretired Nick May 20, 2013, 9:05 am

    I don’t own any gold at this point. I’ve been waiting for years now for what I’ve been sure is a huge bubble to pop. Even the recent downturn isn’t close to what I was expecting. I’ve been wrong before so who knows, but the commodity world is so unpredictable I just can’t bring myself to jump in.

    • retirebyforty May 20, 2013, 2:56 pm

      The only gold I own is my wedding band. I’m waiting for a big downturn too. 🙂

  • Cindy Brick May 20, 2013, 12:21 pm

    In a 30-year chart I bumbled across in my research, gold either held its own or increased in value — sometimes, a LOT in value — nearly every year. That would make me inclined to take the risk, especially since gold prices have dropped recently.
    There’s the puzzle, though. Why exactly have they dropped? I didn’t think all the reasons added up…clearly, there’s something else going on that’s affecting prices.

    I should/would have talked about platinum and copper, Mike, if I’d had the space. But I agree with you — a hedge in platinum wouldn’t be such a bad idea.

    Thanks for writing and contributing!

  • Free Money Minute May 20, 2013, 12:38 pm

    Gold has really never appealed to me. It really isn’t a smart investment as it goes way up and way down without much reason. It could be considered a hedge if you are ultraconservative and want to simply have something at a later point (over time), however it is very possible you could buy in a $1300 an ounce now and have it be worth $1000 an ounce in 20 years. Who knows?

  • The Dividend Guy May 20, 2013, 3:48 pm

    I don’t believe in speculation around metals or other commodities. Unless you like going to the Casino, you should stay away from those kind of investment.

  • [email protected] May 20, 2013, 7:37 pm

    Keeping an eye out for cheapened gold (i.e. in jewelry that is not exactly as advertised) is probably a good call, as well. Interesting background here.

  • thepotatohead May 20, 2013, 8:41 pm

    The best metals to invest in this past year would have been Brass and Lead, I.E.- Bullets. Prices nearly tripled in the great panic buys of 2013. I always think the best things to invest in are tangible goods that will always have value even in a world end/great depression scenario.

    • retirebyforty May 21, 2013, 3:36 pm

      Heh heh, that’s interesting. I wonder if there is any resale value on bullets.

      • thepotatohead May 24, 2013, 4:16 pm

        Only if they aren’t used :p Actually even that’s not true, you can save your used brass casings and sell them for a pretty penny to reloaders. All around practical investment.

  • My Multiple Incomes May 20, 2013, 8:54 pm

    Interesting post! I think Gold and silver as good investments. The price will sometimes go do, but you’ll never lose a lot of money, because no matter how bad the economy has turned, people will still spend money on jewelries and ornaments.

  • Your Daily Finance May 21, 2013, 10:00 am

    I say if you have the money to buy it you should really pick up some gold or silver. Sure the value will go up and down like almost anything but you have something you can hold on to. I only wish I had more money to actually buy some gold at those prices per oz cant really get much.

    • Cindy Brick May 21, 2013, 11:12 am

      Ah, but you can still afford silver!

      I just checked current prices (as of noon today, Tuesday 5/21/13) —
      gold is $1373, silver $22.38 and platinum $1457 an ounce.

      Thanks for writing, everyone.

  • Anton Ivanov | Dreams Cash True May 24, 2013, 11:59 pm

    I use a diversified commodities ETF as part of of my core index fund portfolio. I don’t try to time the markets or use commodities to hedge my portfolio – I use this investment to increase my portfolio diversification by adding an asset class which has a low correlation to equities.

    I prefer an ETF for the continence – owning physical gold can be complicated or include additional fees.

  • Victor @ Goldiraknights.com September 10, 2015, 6:28 pm

    I don’t think that paper based gold like ETF’s and Gold futures is a safe investment ,my favorite way is owning physical gold and store it on my own,though there is some tax involved here ,but security is better ,I also learnt that there are some companies who provide gold storage in Singapore for very low fees,also the gold stored offshore in Singapore is tax exempt ,so I guess I will consider this option in the future after doing more research.

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