When purchasing power declines, stocks underperform, or some other event causes financial uncertainty, demand fortends to increase. Both precious metals have long been seen as and reliable stores of value. But should you invest in one or both? Below, we’ll break down the key pros and cons of both metals that potential investors should consider.
If you think you could benefit from investing in gold, start by requesting a free investor kit to learn more.
You should know the pros and cons of investing in gold and silver
Before you start investing in precious metals, consider the following pros and cons.
Gold investment professionals
What are the keys?
- Various investment options: There is no shortage of investment in gold . You can buy physical gold (coins, bars or jewelry), , shares in gold mining companies and more.
- A reliable store of value: Gold has retained its value over a long period and is considered a reliable store of value. You may be able to buy it, keep it, and trade it in later for the same amount or more.
- Diversify your investment portfolio: tends to increase when other asset classes such as stocks and bonds decrease. As a result, investing a portion of your portfolio in gold can help diversify your risk.
- Protection against inflation: The price of gold also tends to rise during periods of inflation, so it can act as .
Against investing in gold
Now take a look at the reasons you might want to hold off on investing in gold.
- Opportunity cost: Gold and real interest rates have a strong inverse relationship. If you invest in gold during periods when real interest rates have risen, you may miss out on higher returns than other assets, such as bonds.
- Prices may fall or stagnate: While it is it has historically trended upwards, had ups, downs and plateaus — and has been more volatile over the past decade. For example, if you bought gold in October 2012 before the price fell, you would have suffered a loss unless you held it until August 2020 when the price recovered.
- Does not generate cash flow or dividends: Although you can earn a return on your investment in gold due to price appreciation, it does not pay dividends or interest and does not generate cash flow.
- Physical gold requires storage and security: If you decide to buy physical gold, you will bear the costs of transportation, storage and security.
“Invest in gold when the economy is uncertain or when expected inflation is high,” says Danny Ray, founder of PinnacleQuote Life Insurance Specialists and previous fund manager. He adds: “Avoid it when the economy is strong and other investments are likely to outperform gold.”
Learn more about your gold investment options by requesting a free information kit here.
Silver investment professionals
Here are four main advantages of investing in silver:
- Various investment options: If you want to invest in silver, you will . You can buy physical silver, shares in silver mining companies, silver ETFs and silver IRAs – just to name a few.
- affordable: Silver is much more affordable than gold, making it more accessible to investors with smaller investment portfolios. The price of silver is currently around $23.50 per oz. while gold is around $1,950 per oz.
- Greater earning potential: Silver prices have historically been more volatile than gold prices. With increased risk comes the opportunity for greater reward.
- Related to industrial demand: Unlike gold, silver has many industrial uses which means its price is influenced by industrial demand. As a result, its value can increase when the value of other precious metals decreases.
Against investing in silver
Finally, here’s a look at the disadvantages of silver.
- Higher risk: While silver offers the potential for higher returns, its price volatility also presents a greater risk of losses.
- Related to industrial demand: Lack of industrial demand for silver may work against silver investors. Silver can decrease in value when the value of other precious metals increases.
- They do not generate income: Like gold, silver does not generate income for investors the way other assets do through dividends, interest or cash flow.
- Physical silver requires storage and security: If you opt for physical silver, you will again have to cover shipping, storage and insurance costs.
When should you invest in silver?
“Invest in silver during periods of economic growth (industrial demand) or decline (store of value),” says Ray, “Avoid it when the economy is expected to slow significantly or if you prefer less volatile investments.”
Explore your precious metals investment options with our free investment guide.
While these are usually the pros and cons of investing in gold and silver, it’s important to note that there are no guarantees. Whether or not any precious metal is a good investment for your situation depends on a variety of factors such as the amount you are investing, current prices, your risk tolerance, current events and your investment time frame. If you have any questions, a financial advisor can help further explain the potential risks and benefits.
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