by David Hawkins
In 2008 I sent an email to some friends and family suggesting that they start investing in gold and silver. At the time gold was at $700 and silver was at $10. I felt so strongly about the metals that I was offering to fund their online account with free ounces if they just signed up and bought some on their own. It was going to be a gift.
Nobody took me up on the offer. Some of the responses I got were “we can’t afford it yet” and “gold doesn’t earn interest” and “gold is expensive right now”. In hindsight, that was a missed opportunity because gold is now above $1,700 and silver is at $40. Over the same timeframe the stock market is roughly flat and the dollar is down.
Well that time has come again – to recommend gold and silver! I can’t offer to fund your account with free ounces this time, though there is a company called BullionVault that gives you a free gram of gold when you sign up. (I can’t recommend them though since I have not used their services.)
Well, you say. I know that gold and silver have done well, returning 20-30% / year for a decade while the value of the dollar and stock market have plummeted, but why should I get into it now, and how?
Why to Buy Gold
I could write a book about the reasons to buy gold and I have certainly read many books on the subject, but it basically all boils down to one reason for me: we are in the middle of a long term upward trend in precious metals (a “bull market” in industry lingo). Nobody can doubt that now. The fundamentals driving this bull market are government deficits, money printing and market uncertainty. If you think that those trends will continue to get worse before they improve, then you should buy gold.
To me it all starts with the out of control government budget deficits, which causes the Central Bank to print money to buy the government debt (called Quantitative Easing), which leads to market instability. The irony is that the politicians and central planners actually think that printing money helps an economy. Since these trends are well in place and will get much worse before they get better, gold will continue to outperform just about every other type of asset.
There are a couple of ways to buy gold. Let me review each that I use and make a recommendation for what you could do based on your circumstances. Here goes:
Visit your local Coin Shop
This is a good option if you want to actually hold the metals in your hand. However, you will want to purchase at least $2,000 at a time as sales taxes may apply otherwise. In San Diego I like Liberty Coin in downtown Del Mar. They have very knowledgeable staff who won’t try to talk you into buying a numismatic coin. Numismatics are old or rare coins that derive their value from the idea that they are collectables, not from the metals themselves. I don’t recommend numismatics. I recommend what is called bullion – purchasing a coin or bar of gold or silver for the value of the metal that makes it up.
Purchase a Stock or Fund
If you already have a brokerage account for trading stocks then this is an easy way to do it. Many investors don’t like this option because there are so many entities between you and your gold. They point out that technically you don’t own the gold, you own an entity that owns gold.
I own the following funds that hold gold and silver: Central Fund of Canada (CEF), GLD and SIVR. Also, I invest in GDX, which is a fund that owns precious metals mining companies. Obviously, mining companies increase in value as the price of the metals goes up. However at the same time they are known for being more volatile and having leverage. So, if the metals increase by 10%, you can expect a mining company to possibly increase by twice that amount or more. They don’t always do that at the same time though. Gold and Silver are up over 30% in the past 8 months. GDX hasn’t budged.
Storage programs are the preferable method in my opinion. The way these things work is you open an account much like you would an online bank account. You fund the account and then purchase gold that they store in their vault. The key to look for here is a company that will allocate and store the metals in your name. You don’t want a pooled account where defining who actually owns the metal can be iffy. Depending on how much money you have to invest, I like two companies:
GoldMoney is great if you have $5,000 or more to invest at a time, since the account has to be funded via wire transfer. The cool thing about this company is that the vault is located in Switzerland so you can tell your friends you have a Swiss account. It is also the cheapest option if you have that much to invest. Be sure to file the FBAR with the government if your account balance ever exceeds $10,000. Also, there is a somewhat lengthily verification process that involves a notary since you are opening a foreign account. I am told that they might have streamlined this process recently.
The other option, SilverSaver is better for investing smaller amounts at a time and it is much easier to sign up since it is a US firm. SilverSaver has found an easy and automated way for investors with limited funds to start accumulating precious metals on a monthly basis. It only takes about 10 minutes to open an account on their website and link it to your checking account. Minimum investment is only $50 / month and they store your gold or silver in your name. You can sell it back to them any time at market prices or even take delivery to your front doorstep.
SilverSaver has set up a system where you can automatically deduct a monthly amount from your checking account to have it saved in gold or silver. That is a good idea for those of us who need help with the discipline to set aside savings every month. You can also just make a one-time purchase if you want.
Transaction fees are pretty competitive with what you will find at a dealer or any other company (7.49% to 2.99% depending on how much you buy). Storage fees are incredibly low at .6%. You can’t even invest in a mutual fund for less of an annual fee than that.
There are no excuses anymore. The writing is on the wall – when it comes to incompetence in Washington D.C. and the bull market in Gold and Silver. We should all be buying gold to profit from this trend and to protect ourselves, should things get really out of hand. Fortunately, with minimums at just $50 / month we can all afford to do so. Please feel free to leave comments and let me know if you have any questions.