Should I be investing in gold and silver?
If you are wondering whether you should be investing in gold and silver, it is important to look at the pros and cons involved. These commodities can play a useful part in any investment portfolio, but as Nathan Birch from Binvested reveals, they shouldn’t be the main focus.
The good thing about gold and silver.
People often ask us if they should invest in precious metals such as gold and silver.
Nathan says some people like it and others hate it – but he thinks it has its place.
“I’ve been stacking silver and gold for about 20 years now,” he says.
“I think it’s a good wealth insurance against inflation.”
Nathan says he only ever accumulates small parcels here and there when he has some extra capital to invest.
So, why does he do it?
“I use it as a hedge, similarly to cryptocurrency.”
As money loses its value, assets such as property and gold tend to go up. By purchasing precious metals, Nathan is able to diversify his investments across other asset classes.
Should you buy paper contracts or the real thing?
Trading precious metals on the stock exchange is much riskier than buying the physical assets. Nathan says, he only ever buys the real thing as paper contracts are too speculative.
“A paper contract is just a Ponzi scheme,” he says.
“People ask me – would you buy a contract or a mining company?”
“I only buy the physical precious metals.”
He says a friend of his recently lost a $30,000 tax return by betting on exchanges with leveraged gold and silver. Within 24 hours of investing, his capital had increased to $300,000. But, by the next morning he had lost it all.
How does it rate against property as an investment vehicle?
Nathan says, he thinks everyone should have at least a little bit of the physical stuff, but ultimately, he would rather have his money out there working for him instead of owning a few shiny rocks.
“It’s important that people understand what it is and look at all angles.”
He says, while it can be a useful hedge against inflation, it doesn’t match up to the same potential as property.
Gold doesn’t double in the same way that property can – plus, it doesn’t earn an income. He says, hypothetically, if you had $50,000 to invest, property would be a much better option than gold or silver.
Beware of spruikers.
Nathan says you should be extremely wary of people who spruik gold. A lot of investors get stuck by gambling their savings on it because they think money is dying and they should go all in on precious metals.
While it is true that gold has gone up a lot over the past 20 years, Nathan still sees it as a hedge against inflation instead of a stand-alone investment.
After all, what can you really do with it when it goes up? Sell it in order to buy more things?
In a time of hyperinflation, it would be more beneficial, says Nathan, but at the moment there are other assets that would be better to own. Property attached to debt with a good cashflow is one such example.
How do you buy it?
There are a few different ways to buy gold or silver. Buying it in bullion form is the best but make sure you buy it close to spot price. This is the cost of the metal as traded on ETF markets.
Nathan doesn’t recommend buying jewellery as it is often watered down a lot. He says this is the most expensive way to invest in the commodity as the consumer pays a premium for the design.
He warns buyers to be very careful to buy gold and silver from trusted sources and to ensure its purity before purchasing.
Pros and Cons of investing in gold and silver vs property
Still unsure how precious metals rate against property as an investment? Here are some pros and cons to help you compare.
Investing in gold and silver.
- A good hedge against inflation – like wealth insurance
- Can sell it for more than you bought it for in the future
- Just sits there – isn’t out in the market working for you
- Doesn’t earn an income
- You can’t live in it
- There is a lot of fraud in the market
- You can’t leverage it unless you trade in speculative paper contracts instead of the physical metal
Investing in property.
- A good hedge against inflation – as money loses its value over time, assets, such as property, go up in value
- Can have excellent capital growth if you invest in the right sorts of properties/markets
- Can bring in a passive income stream that rises in line with inflation
- You can live in it if you need to
- You can add value to it through renovating or developing
- There will always be a need for it in society
- You can leverage its purchase to increase potential for gains
- You can potentially use its income to repay 80% of the purchase cost if its cashflow is neutral
- It is out there working for you throughout the long term
- It can have many risks attached depending on your strategy
- Market is cyclic – which means prices can go up and down
- You have to invest a large amount of capital, much of which is borrowed.
- Cost of repaying borrowed funds is subject to interest rate fluctuations