Physical Gold and Silver vs. Paper Gold and Silver
Physical Gold and Silver Are Available in a Crisis and Ownership Remains With You
When people decide to invest in precious metals, they have many options. They can chose gold and silver exchange traded funds (ETFs), precious metals mining shares, gold or silver futures contracts, unallocated gold and silver pools or gold and silver derivatives.
Or, they can buy the real thing – physical precious metals.
While each of the above investment vehicles has advantages, only buying physical gold and silver provides you with direct access and ownership of the precious metals in which you invest.
Below is a short summary of some of the most common and accessible ways one can invest in precious metals:
Paper Gold and Silver
Gold and Silver ETFs
Exchange Traded Funds, or ETFs, allow investors to gain exposure the prices of precious metals. There are an increasing number of precious metals ETFs. The most widely -held gold ETF is the SPDR Gold Trust, symbol GLD. The largest silver ETF is iShares Silver Trust, symbol SLV.
Pros: Gold and Silver ETFs allow investors to gain easy exposure to the price of gold and silver through their brokerage accounts. Investors in gold and silver ETFs incur no direct shipping, insurance or storage fees. Shares can be bought and sold with the click of a mouse.
Cons: ETF trading is not available on bank holidays or when the markets are otherwise closed. ETFs generally do not offer a delivery option to retail holders which means that owners of ETF shares do not own physical metal, but rather shares representing physical metals. In addition, ETFs rely on many third parties, including a sponsor, depository, trustee, a functioning stock exchange and a broker. Failure of any of these third party relationships may undermine some or all of the value of the ETF investment.
Gold and Silver Mining Shares
Some precious metals investors like to buy gold and silver mining shares to gain leverage on the prices of precious metals.
Pros: In general, mining shares may rise several times faster than the underlying metals that they mine. Mining shares may be purchased easily through brokerage accounts.
Cons: Mining shares may rise in a precious metals bull market faster than the underlying metals, but they can also fall faster in a bear market. While declining gold and silver prices may mean a loss of value in your investment in physical metals, lower gold and silver prices may mean that mining companies cannot turn a profit which in turn might result in a severe reduction in their stock prices. Successful investing in mining shares also requires knowledge of the industry and the financial health and prospects of particular mining companies. Invest in the wrong mining companies, even if the price of gold and silver rise, and you could lose part or all of your investment.
Physical Gold and Silver
Taking possession of physical gold and silver is a preferred way of investing in precious metals.
Pros: Investors have a wide variety of gold and silver products in various sizes to choose from to fit their budget. Taking possession of precious metals eliminates third party risks of unscheduled bank holidays or stock market exchange closures that might prevent access to your investment. Holding physical gold and silver also eliminates the risk of third party mismanagement or bankruptcy that might limit or eliminate the value of your paper gold and silver investments.
Taking possession of precious metals affords the investor the ability to access his investment 24/7/365 and to select the location for storage (self storage, bank safe deposit or third party vault). Having physical possession of gold and silver products means they can be sold when and as the investor pleases without concern for the stock market being open.
Cons: Investors in physical precious metals may incur shipping charges if they buy their gold and silver online and will have to arrange and incur the expense for the storage and insurance of their metal.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.