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Investing in Gold and Silver

Updated on April 4, 2014

Investing in Gold and Silver: Coins, Bars and Mining Shares

Many advisors recommend having 5% to 10% of gold, silver and other precious metals in your investment portfolio. This can be in the form of mining stocks and shares, ETFs (Exchange Traded Funds), mutual funds or investment trusts, although at least some of it should be in the form of real physical gold. Coins and gold bars can be bought from a broker with a significant premium over the value of the gold, alternatively there are always a lot of gold sovereigns and krugerands available on eBAY for a price close to the actual bullion value of the gold.

This article look in more detail about how to invest in physical gold and some of these other methods of getting exposure to precious metals.

Gold is very volatile and should not form too much of your investment portfolio but it is a useful insurance policy to hedge against inflation and other economic disasters.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

How to Get Exposure to Gold and Silver

A stated above gold exposure can be in the form of mining shares, ETFs or ETCs (Exchange Traded Funds or Commodities), mutual funds although at least some of it should be in the form of real physical gold, the ultimate safe haven. Buying mining shares, mutual funds (unit trust or investment trusts in the UK) and ETFs / ETCs can of course be done through a stock broker, but how do you buy physical gold?

Coins and gold bars can be bought from a specialist coin dealer, but with a significant premium over the value of the gold, typically more than 10% for small quantities of coins to perhaps as low as 5% for large quantities of low quality bullion coins. High quality or rare coins will be more expensive, but should also retain that extra value.

In the UK Sovereigns have a tax advantage over other coins, because they are legal tender and therefore capital gains tax does not need to be paid on any increase in value. They are however a little disappointing at just 0.22 ounces, so you need a big pile of them. South African Krugerands are popular as they exist in various sizes including a full 1 ounce coin, but tend to be a little cheaper than other coins because they are considered less attractive.

An alternative and cheaper way to buy gold coins is on eBay, which is very easy and quite low risk. There are always a lot of gold sovereigns and krugerands available on eBAY for a price close to the actual bullion value of the gold. This is how I have purchased all of my physical gold.

Another, riskier, method for gaining gold or silver exposure is through spread-trading. I have written a separate lens on how to use spread-trading to reduce portfolio risk:


ETCs (or ETFs) which track precious metal prices are available from ETFS (ETF Securities) and are available both in long and short versions (i.e. if you think gold will drop in price, you can still profit from it) ETFS Silver (SLVR) is a dollar denominated silver price tracker. ETFS Metal PPSG (ticker symbol: PHPM) is a precious metal tracker (i.e. a "basket" of metals) There is also "Gold Bullion Securities" which tracks the price of gold and is available denominated in dollars (GBS) or in Pounds Sterling (GBSS)

Pros and Cons of Owning Physical Gold and Silver

So why don't I just buy lots of gold and forget about shares, bonds, cash...?

Gold sounds too good to be true. When other markets and currencies get into trouble gold goes up in value, but there are a few reasons why gold should not make up too large a proportion of your portfolio.

Gold Does not pay a dividend

Shares, bonds and property investments often pay a dividend (or a "coupon" or rent), so even when markets go down you still get an income. Gold does not. It just sits there looking shiny.

Gold needs to be stored

Physical gold in the form of bars or coins needs to be stored safely somewhere. If it is just worth a few thousand dollars you can keep it under the bed and not worry too much, but for large amounts of gold you will need to pay a small premium for storage at a bank or insurance or of course you could buy a safe.

For large investments in gold an exchange traded fund (ETF) can make a sensible alternative (e.g. Lyxor Gold, GBS tracks the value of gold) without the storage hassles.

Investing in Physical Silver

Physical silver is also an interesting thing to buy for investing, but it is worth far less than gold, per ounce, so a significant investment in silver takes up a lot of space. Antique silver however is quite inexpensive compared to scrap silver and could be quite collectable.


Precious metals and especially gold are an important part of any investment portfolio, but it is perhaps more of an insurance or hedge than an investment; it pays no dividend, costs money to store or insure and is very volatile, but it does help protect against inflation. Gold may be purchased in the form of coins, bars or mutual funds or unit trusts (e.g. with a discount broker or "Fund Supermarket" such as Hargreaves Lansdown)

Central Banks and Governments around the world are buying gold in addition to reserve currencies: dollars, euros, yen etc. In the 2011 UK Budget George Osborne, the Chancellor of the Exchequer announced that he could not afford to replace the UK gold reserves that Gordon Brown (the former exchequer and previous U.K. Prime Minister, before David Cameron) sold at a record low price - a cruel, but amusing jibe at the expense of the opposition. At the time, gold was close to it's all time high of about $1,440

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    • TECONET profile image

      TECONET 4 years ago

      I say it's just a pause before the rally. Gold has increased over 600% since 2001 and will still be a winner over stocks or bonds.

    • TECONET profile image

      TECONET 4 years ago

      I say it's just a pause before the rally. Gold has increased over 600% since 2001 and will still be a winner over stocks or bonds.

    • profile image

      fenellashorty 4 years ago

      Gold hasn't done very much for over a year now. I wonder if it is the end of the rally or just a pause, before the next rally.

    • Mary Crowther profile image

      Mary Crowther 5 years ago from Havre de Grace

      It's hard to predict which way the market will go, oh my! Thanks for the good information to help in the decision making.

    • profile image

      anonymous 6 years ago

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    • Andy-Po profile image

      Andy 6 years ago from London, England

      Merryn Somerset Webb announced in MoneyWeek that she selling some of her gold after holding it since 2001 and she is not alone, with quite a few market commentators turning into gold bears. Could this be the end of the gold bull market (Merryn is often right about a lot of things)? I am still hanging on to most of my gold and silver and gold mining shares for now, given the uncertainty in Europe.

    • profile image

      EscortsWorld 6 years ago

      Information is great and very useful, Thanks for such post and I must say that Repayment points were too good.

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    • profile image

      shawknixon 6 years ago

      There are good reasons to learn about the precious metals market. ETF's are great for low premium buys but if we end up with a currency crisis, then physical metals will carry much larger premium.

    • profile image

      theclickfactory 6 years ago

      yeah gold and silver prices becoming skyrocketing investing in gold and silver would be the best option, rather than doing a term deposit.

    • profile image

      HowHard 6 years ago

      Have to agree with Margo I'm at the moment researching as much as I can before I even think about it as I'm very cautious, I'm not rich enough not to be ;) My biggest although not my main source of income has been from property investments which I have been doing with a company called Land Asset Group based in London and I've made some brilliant returns already from my first investment.

      Thanks for the lens it's given me a bit more of a insight into the gold market!

    • Andy-Po profile image

      Andy 6 years ago from London, England

      @MargoPArrowsmith: Yes, very true. It is important to remember that buying commodities, including precious metals is a hedge against inflation or other financial uncertainties: They pay no dividends, but have a useful, low correlation to other asset classes, so they have a stabilizing effect when incorporated in a balanced portfolio, otherwise they are pure "speculation", rather than "investment". Recent gains in gold and silver prices are partly a result of uncertainty in "fiat" currencies (i.e. ones that can be created out of thin-air, like the dollar, Euro, Pound, Yen... etc.)

      Since writing this article gold has more than doubled in dollar terms and it has risen a lot more than that since I first bought into gold and gold miners. I haven't sold much yet, but I'm not buying any more at the moment. I never have more than 10% gold in my portfolio, but always have some because of its insurance properties.

    • profile image

      exit9to5pro 7 years ago

      I am new to collecting precious metals, you made some great points here, thank you. Good job!!

    • MargoPArrowsmith profile image

      MargoPArrowsmith 7 years ago

      If one is going to invest in metals, one really has to know what one is doing. There are so many right wingers on the radio hawking really bad investments to the point where Beck is now saying that what he sells isn't a good investment but people should buy it anyway and they do!

      So its good to be educated.

    • profile image

      AffiliateRockStar 8 years ago

      I have a few gold coins, but mostly cash right now because I definitely don't trust the US stock market. I think it's headed for a crash worse than the 1929 crash.

    • Andy-Po profile image

      Andy 8 years ago from London, England

      [in reply to JaguarJulie] You probably wouldn't want to replace the whole of your 401k with gold and/or silver though. There is an old stock-market saying that you should put 10% of your assets in Gold and hope it doesn't go up in value (i.e. a kind of insurance against disaster) I like the idea of a duel module - I shall have a think about that - I did make a twitterstorm covering this sort of question in a different lens too:

    • profile image

      julieannbrady 8 years ago

      Hmmm, this might have been a definite better investment than the 401k! Would a duel module of gold vs. silver investing be worthy for this lens? Or a twitterstorm?