And some helpful tips if you plan to do so
Last year, I decided to finally purchase gold and silver bullion. Not because I thought the apocalypse was imminent. Or because I thought the economy was collapsing. Gold and silver bugs have long been lumped in with bunker-building doomsayers and economic Chicken Littles. I’m neither of those things. Even if civilization were to collapse, you wouldn’t want to be holding gold and silver anyway. In a post-apocalyptic society, things like food, water, clothing, bullets, gas, and oil represent far great currency than the yellow metal and its gray counterpart. You only need to look at places like Venezuela to see that.
No, it was curiosity and interest, and the desire to diversify my investments. I’ve been in stocks and options for years now. Two years ago, I got into cryptocurrency and DeFi. But last year, I finally made the plunge into the precious metals asset class.
Since then, I’ve accumulated what you might call a good “starter kit” of silver and gold, and the experience has been rewarding and fulfilling.
But why “invest” in gold and silver?
Firstly, it’s not an investment. It’s not even an “inflation hedge,” as gold is often touted as by the late-night infomercials. For something to truly be an inflation hedge, it should consistently outpace inflation. Gold and silver haven’t really ever done that over the last ten years. Going back over their history, there are much better asset alternatives that would have given you much higher returns. S&P 500 and NASDAQ ETFs and index funds, as well as your standard growth stocks, for example. Gold and silver on the other hand will generally just sit there collecting dust as far as the inflation-beating game goes.
Okay, so why would you put any money into them if you’re almost guaranteed to lose against inflation? Wouldn’t that money be better spent in an index or mutual fund, or something like Tesla or Bitcoin?
I think of gold and silver as a specialized savings account.
A traditional savings account offers little to no interest and may even cost you money depending on fees. If inflation continues at its current rate of about 8%, if you put $100,000 into a standard savings account, by the end of the year the purchasing power of that money is roughly equivalent to $92,000. That’s like throwing $8,000 into a bonfire. Gold and silver, however, will maintain as a store of value over the long term. Both metals have had their peaks and valleys over the last twenty years. But relative to the U.S. dollar, they’ve held strong.
They’ve also held up for almost 5,000 years of human history. One ounce of gold during Roman times bought you a nice outfit, a belt, and shoes. An ounce of gold will still buy you that now. Remember, with precious metals you have to take the long view. Don’t think in terms of years or even decades, but centuries. This is another reason I like gold. It’s “eternal.” Apple and Microsoft have delivered exponentially greater gains over the last 40 years of their existence than gold and silver have. But will those tech giants still be dominant or exist at all in another 40 years? Or eighty?
Putting your money into gold and silver is like putting it into cryostasis. You’re saving it for the future, and locking in the value of your hard-earned net worth. Even if gold and silver aren’t measured by the dollar in ten or twenty years, whatever currency they ARE measured by will likely properly match their value. This is why gold and silver are often referred to as “safe haven assets.” They have significant utility. Half of the gold in circulation is used in jewelry. The other half is used in industrial purposes and collectibles. It’s unlikely gold will lose its luster as a form of decoration in the future. And electronics will probably always have a need for gold. Silver also will maintain its industrial use into the future.
I think it’s important to own a non-liquid asset that you can’t just trade away with the swipe of a finger.
This is more of a philosophical rationale. We live in a disposable society in which so many things have become cheap, fast, and easy, like microwave dinners. Retail traders shuffle through stocks on smartphone apps like Robinhood and WeBull with the speed of a Las Vegas card dealer. Most trading on Wall Street isn’t even done manually, but with bots ruled by algorithms. I’ve traded hundreds of thousands of dollars of stocks and options myself to the point where sometimes the money doesn’t even feel real, but more like video game points. Money today, while as valuable and important to have as it has ever been, feels increasingly gaseous and fake. And not just because the Federal Reserve prints it out of thin air. But because it’s often disconnected from the hard labor, work, and risk that used to be required to possess it. For most of human history, if you wanted to make a fortune, you had to conquer someone else who had one. Or you had to be willing to face real danger, like crossing an ocean to seek trade. But capital is generally pretty easy to come by now, and this is only compounded by the ease with which it can be managed on a smartphone. A few taps on a piece of glass and you can move millions. Billions, even. It’s astounding how modern technology, while insanely convenient, has made the act of making money feel devalued and denigrated.
I like gold and silver because I like the idea of my money, my labor, and my time, being represented in something physical that’s been around for millions of years. Not just represented by a few digits on a computer screen.
Buying gold and silver can make you more responsible.
Wait, what? Precious metals can do that? Somewhat. It will certainly necessitate buying a safe for secure storage. It will literally force you to take into consideration the best way to protect your wealth. It prompts you to consider how and where you can store your precious metals. Which in turn prompts you to be more mindful of your surroundings, and your future. Even though you’d think keeping valuable pieces of metal in your home might make you worried for their security, in my experience it’s actually been the opposite. It’s a comforting feeling keeping metals under my roof. Just make sure you don’t go blabbing about your gold and silver to just anyone. And make sure you buy a good safe, particularly one that can withstand the elements, like fire and water. Most safes, as I discovered during my search, are actually ridiculously easy to break into (thanks LockPickingLawyer). But that doesn’t mean you shouldn’t buy one with some serious weight. The more precious metals you’re looking to buy, the better (and larger) your safe should be. Of course, you can always keep your metals inside a third-party vault, but that defeats the purpose (and to me, the real appeal) of owning them in the first place.
Afterall, one of the reasons Bitcoin is heralded as a valuable asset, is because you can self-custody it outside the control of any centralized entity, like a bank or government. Gold and silver have that same feature. Once that sliver of yellow or gray is dropped off at your door, or after you pick it up at a reputable dealer, it’s yours to have and to hold. Just make sure to keep a good eye on where you put it.
There’s also the diversification aspect to owning gold and silver.
When it comes to a lot of investments, people are quick to look at the ROI. The bigger the better, right? Except there’s a little thing called the risk curve. The greater the return on investment, the bigger the risk, generally speaking. Plain Jane mutual funds and bonds equal lower risk. That latest doggy-themed coin: high risk. Precious metals are closer to the safer side of the risk curve. It’s not a bad idea to own a little bit of every asset class, while focusing on the traditionally more successful and reliable ones. Stocks and real estate are always great. Crypto and Bitcoin are the future. But to me, gold and silver serve as an insurance policy. And even potentially as a “do-over fund,” if things really hit the fan. Bitcoin has the self-custody feature. But the downside there is that it’s volatile. Gold and silver tend to be pretty stable. Should you ever need to cash in your metals, there’s a good chance what you paid for them is close to what you’ll get, minus what you paid over spot.
This next reason is a little morbid, but it’s something you have to think about.
What are you going to pass down to your loved ones when you die?
Imagine being able to give them gold and silver, like you were some Medieval king (or a pirate). How cool is that? Call me a sentimentalist, but I like the idea of giving my future children and spouse something beyond just paper assets. Sure, real estate is fine, but it’s hard to split a house. A business is good, but your heirs may not want to or be able to continue running it. Gold coins and silver bars are easily divisible, and simple to trade-in for cash value.
There’s another smaller and sillier reason that motivates me to buy gold and silver.
I grew up loving Scrooge McDuck, from the Duck Tales cartoon. While I never thought I’d ever have a money bin filled with gold coins (and a Number One Dime) like he did, I always envisioned being able to have at least my own collection of coins.
A few things to consider before getting into precious metals.
Make sure you buy from a reputable dealer.
I use JM Bullion, which is a pretty well-established company. I’ve never had an issue with any deliveries. They have three pricing tiers depending on the method you use to pay. Electronic check is generally the cheaper option, but you can also use a debit card, or cryptocurrency. Be prepared to wait about two weeks if you use the e-check method. It’s worth the wait for the discount, though. Afterall, it’s not like gold or silver have expiration dates. A good dealer should ship your delivery discreetly, but you should make sure that your package requires a signature. If you live in an apartment building with a management office, try to have UPS deliver there, if you can’t have them deliver straight to your door. If you are shipping to your own house, either make a signature required, or make sure you or someone you trust is there for when the package is scheduled to arrive.
Get a good safe.
Or at least one that will withstand the elements, mainly fire and water. You don’t have to go all out and spend thousands, necessarily. But you want one that’s heavy enough to prevent someone from just easily walking off with it. Your safe’s size and cost should be proportional to your expected holdings. For a first-time buyer, a simple Sentry safe with a combo lock might be sufficient. It’s what I use myself. More experienced or higher net worth buyers may want something larger. You may also want to even look into keeping your metals in a vault with a private company. Or even in a safe deposit box. Whatever works for you.
Mind the over spot fees.
This is really important to consider, and it’s even something that puts some people off from buying precious metals in the first place. When a dealer like JM Bullion sells you gold, they add an over spot fee to the trading value of the gold item. So, if gold is currently trading at $2,000 an ounce in the market (AKA the “spot price”), JM Bullion might sell you a one-ounce gold American Eagle for $2,100, which would constitute a $100 over spot fee. Dealers have to collect a profit to stay in business, obviously. But depending on the over spot cost relative to the market price of the metal you’re buying, it can make a purchase more expensive than you might expect. A rule of thumb is that generally the smaller weight a metal is, the greater the proportion in over spot fee will be.
Silver has a much higher over spot cost than gold. A one-ounce American Eagle silver coin currently retails for $38 or more on JM Bullion, while the price of silver is at around $25. That’s almost a 50% mark-up! Yeah, silver coins are generally not really worth it, especially during periods of high demand like right now. It gets worse when you consider that if you were to sell your silver back to JM Bullion (or anyone else), you’ll likely only get spot value ($25 an ounce), NOT the over spot cost you initially paid. So, if you’re buying silver coins, you’re in the hole from the beginning. Not the best way to start a new relationship with a new asset. But again, this is why gold and silver are NOT true investments, but specialized savings accounts.
Remember, you’re also guaranteed to lose purchasing power if you hold your money in a traditional savings account in a low-rate environment (like today). But the value of keeping reserves liquid for an emergency, or saving for an upcoming purchase like a down payment on a house, is worth more than the risk of your money gradually losing out to inflation.
To help mitigate the over spot fee for silver, I purchase ten-ounce silver bars, which in calmer market periods often only retail for about $3 or so over spot per ounce. The larger size you buy, the lower the over spot fee, generally speaking. JM Bullion also offers a discount on over spot if you buy in bulk. Though I don’t think I’d ever buy a kilo or 100 oz. bar of silver due to weight and storage issues.
I also don’t buy silver collectibles, such as silver bullets or figurines, or “junk silver,” aka old coins like quarters that were minted with real silver. I’ve found the over spot fees there especially egregious, to say nothing of the questionable “value” in those silver items. Many people buy gold and silver for emotional reasons over purely logical reasons. Metals are assets that make people “feel secure,” especially during turbulent times in the stock market, or during violent geopolitical affairs. This is why many precious metals dealers like to play on people’s fears in their marketing efforts. Dealers like JM Bullion market a variety of gold and silver products on their sites. JM even has a whole line of Disney-themed coins. If you’re into those sorts of products, fine. But collectibles need to be evaluated differently. You’ll almost certainly overpay not just on over spot fees, but mark-up, as well. For me, I stick solely with gold and silver bullion, and I don’t collect or wear jewelry.
As for things like commemorative coins, rare coins, or “proof” coins and such, you’ll also pay substantially higher premiums. The value of those sorts of coins is more in their scarcity and demand in collector circles, than in just their gold or silver content. They are better used as gifts than as “stores of value.” Last year I bought sealed American Silver Eagle coins for my newborn niece and nephew, for instance.
If you’re really serious about acquiring a lot of bullion, gold is going to be your most cost and storage-efficient option. Silver is nice and cheap to start out with. But its high over spot fees don’t make it worthwhile for the average person. To say nothing of the impracticality of trying to store large amounts of the metal. You can easily stick $10,000 in gold coins in your pocket. You’d need a shoebox to carry $10,000 worth of silver, and it’d be heavy to lug around.
For gold, I’ve found that you want to stick with at least one ounce or higher to keep those over spot fees low. Anything less than an ounce, and you’re overpaying substantially. For example, a quarter ounce American Eagle gold coin on JM Bullion currently goes for about $629, with gold at $1941. That means you’re paying almost $144 over spot, or almost 23%. Whereas if you buy the one-ounce American Eagle, it’ll cost you an extra $130, which represents a more tolerable 6.6% over spot cost. The coin posted at the top of this article is the British Britannia. I bought this coin not just for its beauty and its sensational design, but also because it offered the lowest over spot fee for a gold coin. As of now, the over spot cost is only $84, making it one of the best deals currently on JM Bullion.
The absolute cheapest way to buy gold with the lowest spot price is to buy the prepackaged bars in sealed plastic, either the one ounce or the ten-ounce kind. However, I really prefer the coins. The slightly higher over spot fee is negligible compared to the savings you get with the bars. And they just look cooler, too.
Another thing to consider is the purity of the gold you are buying.
American Eagles, for example, are .9167 purity. The remaining .0833 is a mixture of silver and copper to help protect the finish and make the coin tougher and harder to scratch (gold is a soft metal, remember). Even though American Eagles are among the most popular gold coins on the market, if you’re a purist like me, you may prefer as much gold as possible. Since American Eagles are only about 90% gold, while still having a higher over spot fee, I don’t find them to be a good deal. The British Brittanias, on the other hand, are .9999 purity, not to mention have a sharper design. And since I keep mine locked in a plastic holder anyway, I’m not concerned with it getting scratched. So, it eliminates the mixed-metal toughness “advantage” American Eagles have.
Most silver bullion is going to be .9999, so there are generally no purity issues to be concerned with there.
Lastly, you’ll want to carefully consider portfolio allocation.
This is going to be different for every individual. For me, I probably wouldn’t keep more than one or two percent of your net worth in precious metals. Remember, you are essentially “freezing” any money you put into metals. Money that won’t be potentially collecting dividends or increasing in value like it would in a good growth stock, ETF, or index fund. Money you can’t use to save toward a down payment on an investment property, or a small business. It’s also not money you can easily and quickly make liquid for emergencies. And, of course, you don’t want to have more than you can reasonably hold and secure in a good safe. It’s really not necessary to go heavy into precious metals.
A final word of caution. It’s very easy to get bit by the gold bug. Gold’s a metal that has attracted mankind for over 5,000 years, after all. It’s tempting to start collecting a lot more after you get your first shiny new coin or bar. But try to keep it in moderation.
I’ll leave you with a few interesting and fun facts about gold.
According to USGS, about 244,000 metric tons of gold has thus far been discovered. If all of that gold were to be gathered together into the shape of a cube, it would measure 28 meters (98 ft.) on every side.
That’s a fascinating factoid, to be sure. But it got me thinking. How would one measure all of the gold in the form of Mr. T’s? Mr. T., as in the ‘80s pop icon famous for wearing myriad gold chains. Mr. T as in “I pity the fool.”
Mr. T is reputed to have worn approximately 100 ounces of gold, which incidentally would be valued at nearly $200,000 at the current spot price. That means you would need about 86,068,467 clones of Mr. T, all fully decked out in their gold chains, bracelets, and rings, to carry all of the world’s currently known gold reserves (including already mined gold and some discovered, but remaining in the earth). That’s almost the whole population of Germany. That’s a lot of Mr. T’s, and a lot of gold chains.
But you don’t have to be like B.A. Baracus, wearing enough metal around your neck to buy a Ferrari. You can start with a starter kit. A few “stacker bars” of silver. A gold coin or two. Maybe even diversifying further into alternative metals like platinum and palladium, if that’s your thing. Gradually scaling upward as your net worth climbs over time. Whatever you choose to buy, you’ll find precious metals collecting rewarding and fun.