In the article I share what I learned about Investing in Precious Metals: How does it work. When most people think about investing in precious metals the first thing that comes to mind is gold. There is a good reason for this, gold has been the most sought after of all precious metals for centuries. In fact for most of our history gold has filled the role of actually being money. While gold no longer serves the purpose of legal tender many people still choose to invest in it as a way to protect their assets. It is no coincidence that the price of gold has soared at the same time that the stock market went into the tank.
While gold tends to get all of the attention when it comes to investing in precious metals most experts agree that the place you should be putting your money these days is actually in silver. The reason is that compared to gold the price of silver is very low. There is about fifteen times as much silver in available to be mined as their is gold, therefore it is generally believed that the price of gold should be about fifteen times that of silver, and historically this has been more or less true.
However with the value of gold having risen so fast in recent years it now trades at about thirty four times the price of silver, clearly this will not continue. Since it seems unlikely that the demand for precious metals will decline anytime soon the most likely thing to happen is that the price of silver will rise to its historical level relative to gold. There is an excellent article “Gold vs. Silver: Living the Difference” that explains this concept in more detail.
The reason that it is very unlikely that the value of precious metals will decline in the near future is that so many people have lost faith in the stock market. Normally when people think that stocks are not a good investment they will put their money into precious metals.
The other reason is that in an attempt to kick start the US economy the government have seriously devalued the dollar, this has sent the price of precious metals soaring. Since it looks unlikely that the US economy is going to turn around any time soon or that the value of the dollar is going to return to its historical levels anytime soon, precious metals look very likely to retain their value.
When it comes to actually investing in gold or silver you have a few options, one is to actually buy the physical metal. This of course leaves you with the hassle of having to store it. There is also the issue that gold is now so expensive that to buy bullion is out of the reach of many investors. This is why most people now buy their gold as either mutual funds or exchange traded funds. If you are going to do this be careful, many of these funds also invest in gold mining companies. This isn’t necessarily bad but it does increase your risk.