Is Physical Gold and Silver a Good Investment?
There are various methods available for investing in gold and silver. One option involves purchasing physical bullion bars and coins which come with some risks related to storage and insurance coverage.
Other investors opt for ETFs that provide exposure to precious metals without the risks associated with physical storage of physical assets, while still others purchase shares or funds of mining companies, each having their own set of benefits and drawbacks.
1. It’s tangible
Physical gold and silver bullion is one of the oldest, easiest ways to invest in precious metals. Simply purchase from a reliable dealer, store in an secure place, and return at some later point when ready for use.
Purchase bullion coins can also be an attractive investment option, providing added value over their melt value and dealer-specific costs such as storage or shipping charges. Some designs feature on coins making them collectible rather than investment assets.
Investors looking for exposure to precious metals market without owning physical bullion may purchase shares of gold or silver mining companies as an indirect way of investing. But these stocks don’t provide cash flows like an established business does, making them more volatile. Furthermore, tax rules vary significantly for these investments compared with others.
2. It’s a store of value
Gold and silver offer significant value as stores of value, particularly during times when currencies or stock markets decline dramatically or bonds lose appeal. When this occurs, precious metals often increase in value.
Physical bullion investments can be an efficient and secure way to diversify your portfolio, yet storing bullion at home or through a dealer could pose security risks and could leave you exposed in case of disaster.
These investments do not produce income in the way that dividend-paying stocks or interest-bearing bonds do, so for that reason we recommend working with a trusted dealer when investing physically in precious metals. Dollar cost averaging will allow you to purchase bullion throughout the year without being affected by market movements.
3. It’s secure
Gold and silver bullion assets are considered safe-haven investments during times of extreme stock market volatility, offering investors financial security.
Physical bullion offers several distinct advantages over paper investments, namely no counterparty risk due to not becoming somebody else’s liability simultaneously.
However, this does have its drawbacks; physical gold and silver cannot easily be converted to cash; to do so you would need to sell it prior to using it for things such as groceries or purchasing a new car. Therefore, many investors choose mining companies because these investments can be sold at any time during trading hours without incurring higher fees.
4. It’s tax-free
Gold and silver do not produce interest or dividends like stocks, bonds, or real estate do; therefore investors are required to pay capital gains taxes when selling precious metals for profits realized upon sale.
Physical metal ownership presents several drawbacks, such as being vulnerable to theft and needing reliable storage systems; furthermore, larger amounts can be difficult to liquidate (10-ounce bars are often easier than single ones). Many investors bypass these issues by investing in financial instruments like gold and silver ETFs or mining stocks instead.
Once physical metals are sold, their proceeds are subject to tax at your marginal tax rate – up to 28 percent in higher tax brackets. But with a 1031 exchange, any proceeds from physical metals sales can be invested into new assets without incurring capital gains taxes on them.
5. It’s a hedge against inflation
Gold and silver have long been recognized as an effective hedge against inflation due to their ability to preserve purchasing power over time, unlike paper currencies that can easily become hyperinflationary due to government printing practices.
Precious metals provide an invaluable defense against financial and geopolitical crises, with gold and silver serving as popular safe-haven assets that tend to increase during times of panic due to lacking counterparty risk.
Physical precious metal investments do have their downsides; for one thing they are expensive and require regular storage fees. ETFs or physical gold and silver funds offer more cost-effective exposure to the market while still carrying risks such as counterparty risk, leverage risk, and the fact that they are non-tangible investments.