Tuesday, May 8, 2012

Gold & Silver: A Historical Take On How and Why To Invest

A Brief History of Precious Metals

Studying the price history of gold and silver is fascinating. For over a hundred years the value of an ounce of gold was $20 and an ounce of silver $1. Silver historically has a ratio of 20:1 to gold, so eventually it should match that again - meaning the price should increase. At today's gold prices, we should expect that silver would be priced around $80 per ounce instead of $31. There are various theories on why this is not the case including demand and industry fluctuations, the US leaving the gold standard and market manipulation. No one can be certain why the historic ratio is out of whack but we can infer that the ratio will return to historical averages. On the other hand, gold has historically equaled the DJIA. If this were to become reality again, either gold will skyrocket or the Dow will crash. In either case, I think holding a mix is a better option because of diversification and to have flexibility if you do need to purchase things in the future using these assets. It will take a strong person to lug a heavy bag of silver into a store to buy a nice TV. Why not just hand the cashier an ounce of gold instead? This was standard practice 100 years ago in the United States. Empires dating back to Egypt, Greece and Rome all traded in silver and gold coins. This was a time tested practice. Fiat currency systems (paper money backed by nothing) are a rather new invention and don't have a good track record economically. Recent failures in the fiat experiment were witnessed in Zimbabwe and Germany to name a few. Because the historical significance of gold and silver is so proven, I recommend that everyone should own some as an investment and safety net.

Ways to Invest in Gold and Silver

Gold seems like a pretty lucrative investment right now considering the coming inflation and slow global growth outlook. So how can you actually invest in gold or silver? There are several ways actually. Just please make sure that you know the spot price of gold if you're buying or selling gold you own or want to own. As of this writing the spot price is about $1642 per ounce, silver $31 per ounce. The price fluctuates daily but can be found easily on the internet or in financial newspapers. This means you shouldn't buy an ounce of gold or silver for much more than the spot price (unless it's a rare coin) and you should never sell an ounce of either for much less than the spot. I've heard horror stories of people selling a lot of gold to cash for gold companies and getting a quarter of the weight value back in payment. And the worst part is they're usually happy about it until someone points out it was worth 4 times more. Please educate yourself so you don't get ripped off. It's easier than you think to invest in gold. The best way to invest is to buy and hold physical bullion. The ETF's are sketchy because it's hard to guarantee that the paper is backed by physical stock of the precious metals. I like to go to coin dealers or coin shows and stock up on pre-1964 coins which are 90% silver or the old gold eagles which you can also get in one, half and quarter ounce weights. You can also buy jewelry, coins, gold bars or other tangible items with gold or silver content. As a last resort, you can buy a gold, silver or precious metals ETF or mutual fund if you have a brokerage account or buy gold or silver futures on a futures exchange. Trading futures is more risky and requires a lot more capital but is still another way to do it.

About The Author

Jamie has an MBA from Rutgers University and a Professional Certificate in Real Estate Finance, Investment and Development from NYU. He's traded stocks since he was 13 and bought his first property within a year of graduating college. He also flipped properties and got out before the 2008 mortgage meltdown because he was able to see the market turning before it happened. He's started two companies and also has experience in investing in antiques, collectibles, gold, silver and trading futures. He currently operates a website dedicated to helping people achieve financial freedom. For help with money visit www.jamiesmoneyadvice.com.


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