This page has an average rating of %r out of 5 stars based on a total of %t ratings
Reading Time 7 Minutes Reading Time 7 Minutes
Created on 10.01.2019 | Updated on 19.10.2022

When is it worth investing in gold and silver?

Interest in precious metals as an investment increases at regular intervals – usually when inflation rises, when a correction is taking place on the stock markets or simply due to a mood of economic uncertainty. Precious metals have long been regarded as relatively safe investments in times of crisis. When is it worth investing in gold, silver and other precious metals? And how does it work exactly?

Precious metals have always provided a safe form of investment. Gold, silver and other precious metals are not just turned into jewellery. Buying gold or silver is another option to complement equities and other securities. A well-diversified portfolio undoubtedly helps to protect against inflation risks. There are good reasons for investing in precious metals.

Investors who are anxious about a stock market collapse, in particular, like to focus on physical precious metals, such as silver or gold bars. These investors are often speculating on an increase in prices – as gold, silver, platinum, etc. are only available in limited quantities, there is a shortage of these raw materials as soon as demand grows. As a result, the price of gold and silver then rises too.

It is not just private investors who put their money into precious metals: institutions, such as the International Monetary Fund (IMF), the Swiss National Bank and the US Federal Reserve, also use gold reserves as a crisis-proof financial investment. In fact, the USA currently has the highest gold reserves in the world.

What are precious metals worth?

As an investor, you can buy precious metals on the stock exchange (including online), commercially or even in online shops. If you buy bars or coins, it is absolutely essential that you check the quality and make sure the price is fair. What may seem like a very attractive offer has to be scrutinized carefully. It is generally advisable to ensure the bars or coins possess a high degree of purity. The producer should also be certified by a commodities stock exchange, such as the London Bullion Market Association (LBMA). This is one of the most important institutions in the world in the precious-metal-processing industry and grants good delivery status as a guarantee of the financial stability of production, the quality of analytical capability and the standard of the bars produced.

Coins are an exception. There is a large secondary market for coins where they can be bought and sold quickly. Collectors’ coins, such as the Canadian Maple Leaf, Vienna Philharmonic or the Swiss “Goldvreneli”, are sound investments which can be sold on at a profit with a bit of luck. However, the value of these coins does not directly reflect the price of the raw material from which they are made. Very rare gold coins can often be much more expensive that their equivalent value in pure gold.

It’s important to bear price volatility and additional costs in mind.

While precious metals are a secure form of investment, don’t forget that the price of gold, silver, platinum and palladium can be very volatile . Gold and silver do not bear either interest or dividends in their physical form. Their storage in a vault, transport and insurance also incur costs. Investors also have to pay VAT when buying silver, platinum and palladium in Switzerland. Only gold is exempt from this and only if in the form of gold bars. This means investors are dependent on the price of the precious metal concerned rising before they can sell at a profit. It is definitely worth comparing the prices of various banks and traders before buying.

What factors influence the price of gold and silver?

Demand is the main price factor for both gold and silver. As outlined above, precious metals are a much sought-after investment instrument in times of uncertainty. During political or economic crises or times of conflict, demand for precious metals surges, which means prices rise. Although precious metal transactions are carried out in the local currency, global trading takes place in US dollars. That is why the US dollar rate has such a major impact on the price of gold and silver. Interest rate changes also affect prices. Investments in precious metals do not yield any interest. If central banks raise interest rates, other types of investment becomes more attractive. Interest rate hikes are usually made when inflation is rising which favours gold, silver and other precious metals and can still lead to a rise in demand. But the demand factors for gold and silver differ in some ways: the gold price is heavily dependent on demand in the investment and jewellery sectors. In contrast, the price of silver is more heavily influenced by economic cycles because silver is used more in industry.

Should you invest directly or indirectly?

Investing directly in a precious metal means you obtain it in physical form. The advantage is that this type of investment – usually in the form of coins or bars – can either be kept at home or deposited in a safe deposit box, for which most banks charge a rental fee. Buying physical gold or silver is one of many ways of investing in precious metals, but not always the best.

Investors can benefit from returns and dividends through indirect investments. A wide range of securities is traded on the stock exchange and there are various options depending on the portfolio and investment strategy: in addition to traditional funds, other investment options include exchange traded funds (ETF) , exchange traded commodities (ETC)  and equities.

Gold funds often invest part of their assets in physical gold bars and the rest in securities related to gold – such as shares in gold mines, for example. Other funds invest all their assets solely in physical precious metals. Those investing in such funds should supplement their portfolio with securities or other funds to avoid cluster risks from physical precious metals. There are also gold ETCs and ETFs which invest entirely in physical gold, while others are more broadly diversified.

Gold and silver futures (forward contracts in gold or silver) also represent a way of investing in these asset classes indirectly. For example, they are traded on the New York Mercantile Exchange (NYMEX), the world’s biggest commodity futures exchange which is headquartered in New York.

Still a relatively “safe haven”

Precious metals are still regarded as a relatively “safe haven” in Switzerland. Demand grows for tangible fixed assets, especially in turbulent periods of rising inflation – the current gold and silver prices are therefore followed by many optimistic investors. Read more on inflation in the article entitled “What inflation means and how it affects your investment”.

Anyone thinking about investing in precious metals should not overlook the volatility of gold and silver prices. Fees incurred, storage costs and VAT can significantly reduce any potential gain in value when selling.

Gold, silver and other precious metals are an attractive option – and not just in their physical form as gold bars or silver coins. Indirect investment in securities or funds can help diversify an investment portfolio. It is definitely worth considering whether to invest in precious metals directly or indirectly.

This page has an average rating of %r out of 5 stars based on a total of %t ratings
You can rate this page from one to five stars. Five stars is the best rating.
Thank you for your rating
Rate this article

This might interest you too