Gold or Silver Investment – which do I choose?

As investors increasingly turn to precious metals to protect their wealth, a common dilemma faced by many is whether to invest in gold or silver. The two metals behave quite differently, so it’s important to understand the dynamics of investing in either, before deciding to add them to your portfolio. Striking the right balance is essential to extricate value from your investments. Far too many people invest money into these asset classes without understanding what they’re getting into. Unfortunately, this can result in undesirable exposure to risk, further up the road. So, let’s take a close look at the right approach to combining your investments in both precious metals.

Historical analysis

Gold has historically been the precious metal of choice for most investors. During upheaval in the market, gold can provide safety and security for your investment portfolio. If we look back at every financial crisis, it is glaringly obvious that gold has risen to new heights during these times of uncertainty.

During the 2008 market crisis, gold reached its highest point in 2011. Similarly, at the height of the economic crisis created by the global pandemic last year, gold once again touched historical highs in August 2020. Even during a normal period in the market, gold performs steadily. Although the yellow metal may rise or fall in the course of market transactions, it does not suffer from extreme volatility. This makes it a fairly safe bet for most investors.

Investment horizon

Investment planning is perhaps the most important step when investing money into any asset class. Gold and silver exhibit different behaviours across different time horizons. Gold has historically been seen as a safe and steady investment that generates returns and unlocks value over time. Silver, on the other hand, is often seen as a volatile precious metal.

Currently, there is a lot of interest in silver investments as pundits have predicted the mercurial rise of silver in the years to come. Gold is usually a better option for those investing with a shorter time horizon. Silver investors will require a much longer time horizon to unlock value from their investments. However, if the white metal behaves as predicted, there is an incredible opportunity to get in at lower price points and reap great returns in the future.

The gold-silver ratio

Another factor that governs investments in gold or silver is their price ratio. This has widened considerably over the years. It used to be 47:1 but now stands at 85:1. So, silver presents an incredible opportunity for investors to access the precious metals market as it is 85 times cheaper than gold. That is simply an incredible gap, and many investors want to get in and make hay while the sun shines.

But does it make sense to invest in silver? The white metal is a lot cheaper than gold and provides investors with affordable and easy access to the precious metals markets. Due to the widening gold-silver ratio, an entry-level investor may find it more attractive to buy silver.

Daniel Fisher, CEO of Physical Gold believes that the gap could widen further in the near future. According to his prediction, there is a possibility that it could soon be 100:1. Now, more than ever, it is imperative to strike the right balance between these two precious metals, when deciding to add both to your portfolio.

The demand for silver surges

Additionally, silver has suffered from production shortages in the last few years, while demand has risen substantially. As a metal, silver has certain sterling properties. It is one of the most conductive metals and also very ductile. Due to this, it is in demand across several industries like solar, electronics, electric vehicles, etc. Silver investors believe that the price of the white metal may escalate significantly in the years to come, and it may be prudent to lock in investments at low prices now. This may create a wonderful opportunity to reap profits when prices start to rise.

Precious metals portfolio – the right balance

Silver investments can be more volatile when compared to gold. Silver enjoys huge industrial demand and prices are expected to rise as supplies are thinning out. Historical price charts show us that silver tracks gold in terms of growth. Over the long-term, the gold-silver price ratio could reduce to 25:1. The production price is another factor that also needs to be taken into consideration.

In the case of gold, the production margins fade in comparison to its value. However, silver’s current spot price of around £11 does not allow the flexibility to absorb these margins. To strike a healthy balance, a prudent approach could be to maintain a holding of 8% in gold, followed by 20% in silver.

So, if you are focused on building a strong portfolio and hedging risks, gold may be a natural choice. However, if long-term profits attract you, silver investments may fulfil this objective. Gold offers better returns in the short-term and silver can provide you with an opportunity to capitalise over the longer term.

Combining the two metals

It’s actually most prudent to own a mix of both gold and silver. Gold is a more established safe-haven asset, so tends to gain more from market downturns and volatility. Silver can also perform well in these circumstances but also benefits when industrial demand for silver increases as it’s used so widely in electronics. While silver certainly has more opportunity for huge growth, gold is the steadier of the two.

Of course, there are certain tax advantages and disadvantages of buying silver. Silver coins that are legal tender in the UK can qualify for Capital Gains Tax (CGT) exemption. However, other silver investments may not.

The investment experts at Physical Gold can discuss your gold and silver investments

Our investment team is well-placed to offer expert advice to investors like you about investments in either precious metal. Get in touch with us by dialling (020) 7060 9992 or simply send us an email. We can assist you in making the right decision to balance your portfolio by adding both gold and silver.

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Gold and Silver Investment

All fans of the old spaghetti-style western movies would remember the film – “The good, the bad, and the ugly”. Speculative investors often invest in a typical cowboy style without understanding the dynamics of the market. In a world where online gold dealers are becoming increasingly popular, savvy investors need to be aware of the pitfalls of this market. In this article, we will explore the pros and cons of gold and silver investing and also look at a few novice pitfalls which could leave your investment stranded, if you’re not careful.

The pros of investing in gold and silver (‘The Good’)

While gold and silver has been used as a medium of exchange in the past, coins and bars are now bought and sold as an investment. Buying real physical gold (as opposed to paper or electronic), offers a unique, intrinsically valued asset  which can rise in value and provide balance to a portfolio.

Established market

The Internet and the information age has created transparency across the globe when it comes to gold and silver prices. It doesn’t matter whether you’re based out of Honolulu or Hokkaido, spot prices of gold and silver are easily available for all investors to browse before buying or selling. There are plenty of reputed online gold dealers who would guarantee your purchases and industry bodies like the LBMA or the BNTA are regulating the market at all times. This creates a level playing field for all investors to be able to invest their money safely.

Verifiable assets

For investors in the UK, the London bullion market has created a system by which all gold bars in their system are verifiable, starting with the manufacturer, the assayer through to storage facilities in which the bars are held in LBMA recognised vaults. Through these best practices, the gold industry has reduced the risk of counterfeit bars entering the system. In a similar manner, the silver industry is also well regulated, providing investors with a transparent market where their money is safe as long as they’re dealing with registered, reputed brokers and dealers.

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Unique hedge against inflation and recession

Precious metals like gold and silver are an excellent hedge against economic turmoil and inflation. The prices of gold and silver have remained relatively stable over the years and are not affected by volatility in the way that other asset classes are. All of this makes investments in gold and silver worthwhile in the long run. Owning gold or silver will likely reduce your overall financial risk as their value tends to rise when mainstream assets fall. In other words, gold and silver investment thrives during times of economic turmoil.

Disadvantages of gold and silver investing (‘The Bad’)

There are possible downsides to every investment and gold and silver have their possible disadvantages too. It’s always important to assess every investment opportunity on it’s merits and judge it based on your investment objectives and priorities.

No income from owning coins or bars

Once an investor purchases gold or silver in its physical form, he/she cannot make an income out of this investment unless the asset is sold. Certain investments in gold and silver are tax-free in the UK, however the same does not apply to the rest of the world. Of course, there are ups and downs in the spot prices of gold and these asset classes cannot be used to make quick money. Investors need to remain invested over the long-term in order to reap benefits from their investments.

Don’t buy the wrong type of gold

Buying gold and silver jewellery is not ideal as making charges and wasted charges are deducted from the sale price. Since the prices of gold and silver do not rise quickly, these deductions could erode whatever returns you have made on your purchase. Only investment grade gold is VAT-exempt, so ensure you are buying bars and coins of 22 karats and higher only.

Buying gold or silver coins with huge premiums or in expensive packaging can also negatively impact your investment returns, so be sure to research the best coins for investment in your country. A good precious metals dealer should be able to provide guidance.

Costs to buying, selling and storing

The spread between the price you pay when buying and selling is higher when dealing with physical silver and gold than with electronic assets. The cost of manufacturing and distribution means that the market has to move up more with gold and silver investing to make a profit than trading stocks.

Another downside of investing in gold and silver is that you need secure storage. It may not be safe to store precious metals inside your home, especially if you have a large amount.

Professional storage solutions are available, for example, Physical Gold stores their client’s purchases in an LBMA approved vault. However, there are costs attached to this and this and needs to be factored into the overall price.

The downright ugly

Trading in the precious metals markets requires you to be a savvy investor and have good knowledge of the market, especially when it comes to identifying genuine gold and silver. While there are accessories available in the market that can help you do that, you do require experience and specialised knowledge to be able to tell whether a bar or a coin is counterfeit. There are plenty of rogue traders out there and that’s the ugly part. Many in investors often fall for the lure of advertising and end up dealing with one of these rogue traders. Needless to say, their purchases are often fake and by the time the end up realising that, the money is all gone.

As a precious metals investor, you need to deal with a reputed online broker at all times. The BNTA website has a full list of registered traders. Physical Gold is proud to be an authorised BNTA trader and has a long track record in the market, with thousands of customers who had a great experience with us.

Don’t fall for the bad and the ugly

Talk to our precious metals experts at Physical Gold today and they will advise you on the best way to invest in gold and silver. Our investment experts take into account your investment goals, your personal profile and your investable capital. They use this information to advise you on the best way to build up a precious metals portfolio at the best prices in the market. Call us today on 020 7060 9992 or get in touch with us online to speak to a member of the team.

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Silver investing now and in the coming years

In this video, we’ll take a look at silver’s prospects for 2020 and beyond. Over the past 5 years, interest in silver has grown exponentially to the point where we now get almost as many silver enquiries as gold.

So is silver a worthwhile investment in 2022 and beyond, and what can we expect from it, we examine silver investing in 2022?

I’d like to start by looking at downside risk. The silver price fell from around £13 an ounce at the start of 2017, to £12.50/oz the following year, and nearer to £12 an ounce in 2019. Clearly, the prospect of owning a depreciating asset is unappealing.

Downside risk

However, unlike gold, silver’s demand consists predominantly from industrial use. As the world’s most conductive material, silver is used in most electronic components, solar panels, photography and medicines. The digital age is only going to develop over the coming years, creating new electronic demands on silver. The search for alternative energy will lead to increasing silver demand with electric cars and electric solar energy. So with industrial demand rising, downside risk to silver is minimal.

Gold-Silver ratio

It’s also fair to say that the silver price has suffered far worse in recent years than the gold price, with clear suggestions that it’s been oversold. The ratio between the two metals’ prices has widened from a long term average of 47:1 to 70:1 a few years ago, and now an incredible 95:1.

This theme may scare inexperienced investors, but this would suggest a buying opportunity in 2022 for silver. If you can lock in prices when the silver price is so low, your upside becomes magnified.  The silver market is far smaller than that of gold, so prices can be more volatile. It also means that the price can move up in percentage terms far quicker and far greater.

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Global economy

The silver price could well receive a double boost over the coming years.

As well as the rising industrial demand, there’s plenty of uncertainty in the global economy to boost silver as a safe haven. 2019 and beyond marked a turn in the economic cycle. The middle of 2018 saw property prices begin to fall and global stock markets start to decline from their 9-year bull run. After nearly a decade of rising stock and property prices, the global economy is set for a big correction, especially with interest rates now on the rise. Throw in Brexit and a growing car leasing credit bubble, and safe havens could well become the flavour of the month once again. Gold will likely rise first, with silver following behind. But once silver starts its upward trend, the pace of increase will outstrip that of gold.

Diversify

A lot of investors ask me whether they should buy gold or silver. After all the two metals are quite different. For me, there’s a strong case to own both. Diversification is key in today’s digital globalised economy, so investing in silver and gold is a great way to hedge your hedge!

Now tax free

By sticking to Silver Britannia coins, any profit you make is also free from Capital Gains Tax!

Silver investing in 2020 with Physical Gold Ltd

So there you have it. 2020 and beyond are set to be exciting years for silver investing. Courage may be needed to enter a market which has fallen in value, but history will tell you, that’s the exact time to stack your claim.

If you feel silver could play a role in your investment portfolio, or you simply want to buy some silver coins or bars, then don’t hesitate to call our team of experts on 020 7060 9992 for any guidance you need.

I hope you’ve enjoyed today’s video. If so, please check out all 20 videos in the gold & silver investment guide series.

Different gold alloys

The chemistry of gold makes it a unique element in the world, such that there is none like it that can be found. Many of us learnt during high school chemistry lessons that the chemical symbol of gold is Au. Gold has an atomic number of 79, which simply means that each atom of the precious metal contains 79 protons within its nucleus. The unique colour of gold, however, is not dependent on the atoms, as the colour of a metal is dependent on how electrons behave between energy bands. In the case of gold, its unique colour is based on these transitions which give the metal an unmistakable, alluring, warm lustre that humans have found irresistible for centuries.

The unique properties of gold

The purity of gold is indicated by the karat number the metal possesses. When gold is fused into an alloy with other metals, its purity decreases, as does its karat number. So, 14 karat gold has a far greater proportion of base metals than 24 karat gold, which has a purity of 999.9. Now, that leads us to an interesting question. Why is gold formed into an alloy with other metals? In reality, this has a lot to do with its usage. Gold is commonly used in making jewellery. In order to use gold to carefully craft the intricate designs of jewels, the metal needs to undergo certain changes that make the substance easier to work with.

For example, we know that pure gold is extremely soft and malleable. This means that if we manufacture jewellery using 24 karats pure gold, the products would never retain their shapes. On the other hand, pure gold is also ductile. Believe it or not, one ounce of gold can be pulled into 80 km of gold wire with a thickness of 5 microns. So, in order to make it more usable and durable, certain base metals need to be added to gold to harden it. So, as a savvy gold investor, you need to know and understand the different types of gold. Understanding its composition gives us greater insight into its characteristics and industrial usage.

The different faces of gold

The creation of gold alloys greatly affects the properties of the precious metal, which is why it’s a useful technique that has been around for years. Important properties like the colour, melting point, ductility or malleability of gold can be altered by simply adding other metals into the mix. When we add base metals like zinc, cadmium or tin, the melting point of gold is reduced substantially.

Gold has a melting point of 1063 degrees Celsius. Due to the reduction of the melting point, savings in energy costs are achieved. On the other hand, adding platinum or nickel increases the hardness of the alloy. This is essential for jewellery manufacturers, as pure gold is too soft to work with. By hardening the surface, the jewellery also becomes scratch-resistant, which is an added advantage.

Changes in colour

Gold jewellery now comes in a range of fantastic colours. These colour effects are created by adding copper, palladium, silver or nickel in accurate proportions. Since these metals each have their own properties, they are able to create different hues when fused with gold. Popular gold shades like green, grey or white gold are created in this manner. An interesting example is white gold. This is created by adding rhodium. The combination not only creates a white lustre, it also makes the surface much harder, making it scratch proof. The gold-titanium alloy is another example of an innovative alloy used to make wedding rings. In this alloy, only 1% of titanium is introduced, which is enough to make it really strong and creates a lovely shimmer, along with a grey tone.

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Call our gold experts to find out about different types of gold

At Physical Gold, our gold experts are able to guide customers on every type of gold there is in the market. We advise customers just like you on making investments in precious metals every day. We are a reputed online gold and silver broker and all our products are sold with a certificate that guarantees its genuineness as well as a buyback promise. Call our team now on 020 7060 9992 or drop us an email and a member of our team will get in touch right away.

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Why buy physical gold rather than gold funds?

Investing in physical gold coins and bars is one of the most popular ways of buying gold. There are other options, ranging from gold funds and gold ETFs, to buying individual gold mining stocks or electronic fractional ownership of pooled gold.

It’s important to understand that the right choice when buying gold will depend on your objectives and circumstances. Generally speaking, if you want the most secure and trustworthy of owning gold, then buying physical gold coins and bars is the only method to achieve that. If you’re seeking to buy and sell gold often and trade the market, then electronic versions can be more cost efficient, albeit more risky.

Here we break down the considerations when considering why to buy physical gold.

1. Security and Integrity

While ETFs have provided an accessible way for investors to gain exposure to the gold market there are many fears circulating about their security and integrity. For starters, the fact it is a structured paper asset that not everyone fully understands tends to defeat the object of owning a simple tangible asset like gold. So many investors have been stung over the past 5 years investing into asset-backed securities that were rated AAA by the credit rating agencies, only to see them downgraded to junk status overnight when everyone realised that the subprime mortgages they were linked to would not payout. It transpired that many very sophisticated investors never really knew which assets the bond was linked to or understood their lack of protection against such defaults. So are you more comfortable understanding the risks of holding gold coins or gold funds or ETFs?

Press reports are speculating that only 10% of the traded ETF value is backed by actual gold. With a distinct lack of auditing, its difficult to know for sure what the exact figure is.

Jefferey Christian of the CPM Group confirmed that gold is leveraged around 100:1 at a Commodities Futures Trade Commission (CFTC) Hearing on March 26, 2010. This means that there are around 100 claims for each ounce of gold in existence and so not enough gold to be delivered to everyone who has been promised paper gold.

So the question remains would you be able to access the value of your ETF if half or more of the investors decided to withdraw at the same time?

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2. Counterparty Risk

The term counterparty risk has become far more used and relevant over the past few

years. This term didn’t seem relevant to bank deposits a decade ago it went without saying that leaving savings in a high street bank was safe. But things have changed dramatically. Now we’ve seen our major high street banks on the brink of collapse. Who would have believed me 15 years ago if I’d have predicted that RBS, Nat West and Lloyds would be mostly Government owned?

The 2008 credit crunch saw bankruptcies to seriously major corporations from General Motors to Lehman Brothers. I saw many friends who had built up shares in Lehmans over many years of work and anticipated those stocks providing their retirement. No-one could have predicted that they would lose value so quickly and Lehman would go under.

We then saw the next phase of counterparty risk with Sovereign debt. Investors who thought they were taking on very little risk by investing in Government bonds faced the very real prospect of not being paid out in full. Countries such as Ireland, Greece, Portugal and Spain need help from the EU and IMF to repay their debts. There is every chance that bondholders will not receive all the capital back.

And now, in the new Covid world, Government debt is at record highs and corporations are struggling to adapt and survive under the new world parameters.

With physical gold, there is NO counterparty risk. It doesn’t matter if a Government fails to repay bonds, a corporation goes bankrupt or even if the gold dealer you bought the gold from ceases trading. You will always have the physical asset to do with as you like.

By investing in gold mining stock, ETF or Gold funds each poses some sort of counterparty exposure and a threat to the value of your asset. Remember paper gold is a promise to pay, not the real thing!

3. Risk Profile

If you’re considering a choice between mining stocks and physical gold, its crucial to realise that these are different asset classes with entirely different risk profiles. Firstly, investing in mining stocks means your investment is linked to the performance of one company. As a paper asset, if that company underperforms, or even worse goes bankrupt, there is a chance that your investment becomes worthless. The value of gold coins and bars can never fall to zero or anywhere near because of the intrinsic gold content. During times of global economic turmoil mining stocks and bullion perform quite differently. Terror threats, currency depreciations, huge unemployment, record deficits and banking crises don’t provide conducive conditions for equity markets, which is why we’ve seen more and more people fleeing to the safety of gold bars and coins. Generally, while mining stocks have the potential for impressive returns they tend not to outperform physical gold during times of crisis such as the recent credit crunch. During sharp market declines such as the 1987 stock market crash, mining stocks become correlated to the broad equity markets rather than the price of bullion.

4. Comprehensive Insurance

If the reason you want to invest in gold is for portfolio insurance then make sure you have a Comprehensive policy! Everyone knows that gold provides security against economic and political unrest, making it the perfect safe haven asset in the current world in which we live. In that case, you want this wealth protection to be thorough. By investing in paper gold its like buying an insurance policy with get-out clauses. In other words, it doesn’t provide full coverage. There are still risks attached such as counterparty risk. By investing into physical gold, its like having the most comprehensive insurance available, putting your mind at rest that no matter what the next financial headline is, your physical gold holding will provide the necessary balance.

5. Tax Efficiency

In the UK, there is the opportunity to own physical gold coins which are completely tax-free. All investment grade gold is VAT exempt. You pay no income tax while holding the gold and UK coins such as the Britannia and Sovereign are Capital Gains Tax-free due to their status as legal tender. Compare this to paper gold such as a mining stock or gold funds where you’ll have to pay income tax on any dividends and capital gains tax if you sell the shares at a profit. With CGT now up to 28% for higher rate taxpayers, that’s nearly a third of your profits!

6. Accessibility

Accessibility in times of crisis is crucial. After all, gold should act as your crisis hedge. Over the past month, we’ve read about the attempted ink-cartridge bombers and MI5 revealing renewed threats to the UK, France and Germany. The Eiffel Tower has been evacuated twice in recent months. If one of these attempts gets through and the financial system collapses for a week or so how easy is it to access funds through your gold ETF, mining shares or Gold funds? By holding the physical metal itself, especially in the form of globally recognised coins, you hold the ultimate liquidity.