An investment in gold and silver at this time would make sense for someone looking for a more balanced portfolio. One might also consider platinum, palladium and rhodium but this report will not include those metals.
Precious metals can be purchased in ingot or coin form. Ingots are cast of pure bullion of a convenient size and shape. Coins on the other hand have a currency value and can have added worth based on where and when the coin was produced.
I personally recommend coins for that very reason. Depending on what series you buy it can make a big difference in what the coin will be worth in future years. Buy something that you feel will become collectible.
The first decision one should make is the amount of the investment. My recommendation is 10% to 20% of your investment portfolio. It is easiest to divide your investment in half. So your portfolio would contain an investment of 10% for silver and 10% for gold.
If you would like to consider adding other metals I would but still not increase the overall percentage in your investment plan. Your investment in precious metals may be a short or long term proposition based on your investment target.
The next consideration is when to buy. My research has indicated that the price of production for most gold is between $1000 to $1200 an ounce. Therefore regardless what “experts” may advise in the long run it cannot be below that price in the long run. If the world price goes below the cost of extraction the supply will begin to dwindle.
This is for two reasons. The first reason is that individuals and institutions will begin to buy again to take advantage of the “sale”in the price. The second reason is that production slows and before long mines begin to be shuttered especially those that are closest to the line of profitability.
Silver has a cost of production in the long term of about 16 to 18 dollars an ounce. The added advantage here is that 50% of the annual production of silver is used for industrial purposes. This provides additional demand and a price support that gold does not have.
Gold is mostly used as an inflation hedge and in jewelry. Its recent price rise has limited its industrial uses. Silver on the other hand has many other uses. There is a greater abundance and therefore a lower price.
Historically gold has been 12 no more than 13 times more expensive than silver.
At the close of market on Friday, February 14, the price of gold was $1319.10. This would indicate that silver should be priced at between $75 and $110 an ounce. At the close of business Friday its actual price was only $21.51. This would seem to indicate that silver has incredible potential in the long term.
Gold increased in price $16.30 for the day a 1.25% increase. The increase for the last month was $77.10 a 6.21% increase.
Why buy now? Well, even though there has been a recent run up the one year change for gold is still down $315.30. This is -19.29%. The market correction occurred in 2013.
Silver reached its last peak in June 2011 when it was selling at $45.83. In 2008 it reached a low of $9.17. Its highest price ever was $49.45 an ounce reached in 1980. This unique situation was a result of the Hunt brothers in the United States attempting to corner the market on silver at that time. This particular scenario is unlikely to occur a second time.
Gold reached its peak of $1,910 an ounce in the summer of 2011.
An obvious question would next be which company? One will need to make an up to date comparison of the coins to be purchased and they may come from a number of companies depending on what you are buying.
Another consideration is to decide if you wish to take physical possession of the coins. If you decide to do this you will need to make sure you are able to receive them at a physical address and have a secure place to store them. A number of companies will physically hold them for you if you prefer. I personally recommend taking possession of your purchase.
There are many companies selling these coins. Make sure you factor shipping and delivery costs as well as insurance. Some companies will offer free shipping if your order is large enough. Prices will vary over time so do comparison shopping.
The following are some of the most reputable companies:
Monex Precious Metals
United States Gold Bureau
U.S. Money Reserve
The next article on gold and silver which will post on Wednesday focuses on why 2014 is the year to make an investment in gold and silver.