With the run up in the price of precious metal over the last three years, investors and speculators have been buying gold and silver at a record pace. It's no wonder, according to the December 27th issue of the Wall Street Journal, the price of silver increased 78 percent in 2010; gold increased by a more modest 22 percent. For most investors, the rapid run-up in price in 2010 was a delightful surprise. There are five very important points to realize about buying gold, silver or most other precious metals this year.
They are as follows:
- The higher the risk of inflation the higher the price of gold and silver - This is because during inflationary times, hard asset (such as gold and silver) prices go up, and many times paper asset (stocks and bonds) prices go down. Hard assets are bought once and sold once. The "value" is realized only upon the sale. The value of paper assets is often derived from its fixed interest or dividend payment. If inflation eats away at the value of the payment then the "value" of the paper asset is less.
- If the Government turns on the currency printing press, as it has recently during quantitative easing, the value of gold and silver should go up - and it has. Governments can print an unlimited amount of money. When things get out of control, the currency buys less as less. We saw this in Argentina years ago - people were going to the grocery store with wheelbarrows full of money to pay for milk and bread. Mother Nature has made only a fixed amount of gold and silver. Those that own these precious metals while the printing presses are running stand to do quite well.
- Gold and silver prices can go down just as fast as they go up - Just when you least expect it, the price can drop. With a bit of good news in the world market or a hint of economic recovery - the price starts to fluctuate. In other words diversify.
- If you're buying a coin for its precious metal content, collector coins (such as proof coins) are not the best choice - Buying collector coins is a different (and also potentially profitable) type of coin investing, buy if you are buying bullion, buy it as close to market price as possible. This means basic American Gold and Silver Eagle Bullion coins for most people - and rounds, bars and ingots for professionals.
- Make sure you buy from a reputable bullion dealer - Buy from a shop or online dealer that has been around for 10, 20 even 30+ years. Get references.
There are many, many good books on buying gold and silver. There are also great websites (see ours - we think it's very good, sign up for our free weekly newsletter). The information available out there is plentiful. We hope you thoroughly enjoy bullion investing and gain a sense of ease from economic concerns during these turbulent times.
All the Best
Geoffrey M Schmidt
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