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Created on 10.01.2019

When is it worth investing in gold and silver?

Interest in precious metals as an investment opportunity 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 a “safe haven” 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 silver or gold still represents an investment opportunity, enabling portfolios to be diversified and providing protection 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 and platinum etc. are only available in limited quantities, there is a shortage of these raw materials when demand grows. As a result, the price 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’s 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’s generally advisable to ensure the bars or coins possess a high degree of purity. The manufacturer should also be certified by the London Bullion Market Association (LBMA). 

Coins are an exception. There’s 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 material from which they are made. Very rare gold coins, for example, can 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 bars or silver coins 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 purchased in the form of gold bars.

When purchasing gold or silver coins, costs are also incurred due to sometimes wide spreads. This means investors are dependent on the price of the precious metal concerned rising before they can sell at a profit. It’s definitely worth comparing the prices of various banks and traders before buying.

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 options is available: in addition to traditional funds, investors can also select exchange traded funds (ETFs), exchange traded commodities (ETCs) and shares.

Gold funds often invest part of their assets in physical gold bars and the rest in securities related to gold, platinum, silver or palladium – 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. Some ETFs 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 “safe haven”

Precious metals are still regarded as a “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 “How inflation 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.

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