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Various Ways to Invest in Gold, Silver and Other Precious Metals

Tips on how to invest in gold, silver, and other precious metals

By Mark Ferguson for CoinWeek …..

Using gold as an example, the first investing decision you need to make is whether you want to invest in “paper gold” or “physical gold”. Paper gold is one of the investment instruments purchased through the securities market. Physical gold is the real thing – you can hold it in your hands. Investing in paper gold offers ways to earn higher profits than by investing in physical gold, but it also has more risk – you can lose more money. By investing in physical gold you take possession of real gold, in coin or bar form, and store it in your own safe deposit box or other commercial depository, or some other safe place you feel comfortable with.

Paper gold, paper silver or similar investment instruments for other precious metals, like platinum or palladium, can be comprised of mining stocks, Exchange Traded Funds, known as ETFs, or futures contracts, for example. They generally cost less to buy into than physical gold and can be dangerously leveraged, meaning you can borrow against your investment to invest in a larger dollar amount for your money, but this can also work against you – big time.

On the other hand, mining stocks can often produce gold, or other precious metals, for far less than the market price of the metal, so investors can reap the rewards.  However, the management of the mines can often fail, expenses could get out of control, a corporate board could decide to purchase other mines that produce negative returns, government mining laws could change in a country in which a mine is located, or similar scenarios could occur that end up losing money.  You have little or no control over your investment.

Futures contracts, which are only for the sophisticated investor or speculator, are usually highly leveraged investment instruments, and unless you’re very experienced at investing in them, you’ll more than likely lose big time, as have most of the people I know who have tried them – kind of like going to a casino for the average investor. ETFs allow you to own shares in funds that invest directly in the precious metals, and you roughly receive a dollar for dollar share of the gold, silver, or other precious metal you invest in, less management fees and commissions. This is often what’s recommended by traditional investment advisors. But, of course, these “alternative” paper investments also carry the risk of changing government regulations, such as tax rates or trading exchange laws, for example. Funds could also be tied up or lost if these funds are mismanaged, or if “rogue” traders get the best of the funds, as we’ve seen happen in recent times, taking down large, old-established international investments firms, for example.

But if you’re concerned about another financial meltdown and want to make an investment in gold, silver, or other precious metal that is outside of the financial system, then you’ll have to take ownership of the actual physical precious metal you’re investing in. And this is exactly why most people invest in the real thing – the physical form of gold, silver, platinum or palladium. However, these last two metals get a little exotic for most investors, taking into consideration their industrial usage. Gold and silver are the two primary financial metals investors use for protection from an economic catastrophe, like the events we experienced during 2008. However, silver is used in industry, in addition to being considered a financial metal. Gold is mostly considered a financial metal but, of course, is also used in jewelry. It’s what central banks of sovereign governments own, including the United States Treasury.

Again, investing in the physical form of precious metals costs a little more than paper investments, but you get the most reassurance that you are making an investment that is truly outside the financial system. Of course, the common way to own gold, silver or platinum is in coin or bar form. And there is little risk in knowing that you’re getting the real thing if you purchase from a reputable source, as the coins you will typically be buying are manufactured by sovereign government mints, such as the United States or Canada, and are actually legal tender coins, not medallions, that you can use to spend as money. However, their face values, or denominations, are worth much less than the market values of the gold or silver they contain.

For example, the United States created the American Eagle bullion coin program in 1986 for the express purpose of allowing Americans to invest in precious metals. This was in answer to our country banning the importation of the South African Krugerrand coins, in response to that country’s apartheid movement. The American Eagle coin program mints gold, silver and platinum coins in various sizes, including one ounce, one-half ounce, one-quarter ounce, and one-tenth ounce sizes for gold and platinum and just the once ounce size for silver, because of the much lower market value of silver. The denominations for the gold coins are $50 – one ounce, $25 – half ounce, $10 – quarter ounce, and $5 – tenth ounce. Platinum coin denominations are as follows: $100 – one ounce, $50 – half ounce, $25 – quarter ounce, and $10 – tenth ounce. The one ounce American Eagle silver coins carry the denomination of one dollar. Each coin displays the year it is minted, just like all our other coins that we carry as pocket change.

Similarly, the Canadian government mints precious metal coins, known as Canadian Maple Leaf coins. Of course, most Americans prefer the American Eagle coins, but because they are so popular in this country, they are often a little more costly to purchase and the U.S. Mint charges about a three percent premium over their precious metals value, again, using gold as an example. Investors cannot purchase these bullion coins directly from the U.S. Mint. There are about 10 large wholesale firms that are “Authorized Purchasers” who distribute through the rest of us dealers who then sell to private investors. Primarily for that reason, many investors purchase the Canadian precious metal coins, which are often less expensive to purchase that the American Eagle bullion coins. There are also other bullion coins the U.S. government has minted over the years, such as the American Arts Gold Medallion series, which preceded the American Eagle coinage program, the one ounce American Buffalo gold coins, the First Spouse$10 gold bullion coins, the Augustus Saint-Gaudens designed Ultra High Relief gold coin, as well as many commemorative series coins.

The U.S. government does not manufacture precious metal bars for investment. However, the Royal Canadian Mint does, as do private mints here in the U.S. and around the world, as well as some of the major Swiss banks. In recent years, the market has, once in a while, experienced shortages of bullion coins, and investors have had to wait weeks, or in some cases months to take possession of their coins, after plunking down their money and locking in prices with dealers. So some investors have instead purchased bars, or other alternatives, such as circulated silver coins in order to take possession immediately.

Actually circulated U.S. silver coins, often known as “junk silver” can be a good way to go. These are circulated (used) dimes, quarters and half dollars minted from 1964 and before that are comprised of 90 percent silver. When market conditions are right, they can sometimes be purchased for very close to their “melt” values. In a typical $1,000 face value “bag” of silver coins, which is the way they are traded in the market, there are 715 ounces of silver. There are also 40 percent silver Kennedy half dollars, struck between 1965 and 1970. Each $1,000 face value bag of these coins contains 295 ounces of silver.  Of course, on the secondary market, from coin dealers, these coins can be purchased in smaller quantities. Vintage U.S. gold coins, minted prior to 1934, are a good alternative for investing in gold.  Their premiums over their metal value have come way down to virtually nil during recent years, as the price of gold has climbed.

Lastly, it’s good to know that many of these precious metals products qualify as investments that are allowed in retirement plans, such as IRAs and 401Ks. This is a great benefit to know for many Americans who can use this investment money to invest in these alternative investments for reasons I cover in other articles about investing in precious metals. Of course, qualified administrators must be used to set up these investments, but they can be a very safe way to invest in physical precious metals as a hedge against economic turmoil.

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Mark Ferguson
Mark Ferguson
Mark Ferguson was a coin grader for PCGS, a market analyst for Coin Values, and has been a coin dealer for more than 40 years. He has written for Coin Dealer Newsletter, Coin World, Numismatic News, Coin Values, and The Numismatist.

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  1. A great report. I can’t decide on weather to invest in gold coins or bars. The same goes with silver. What do you say? Also, I have read on the net and Facebook about an investment company named The company president is someone named Oswald Pelaez and he states that he guarantees a positive outc0ome to his investors. Have you ever heard about him and his gold company? Could he be a safe place to invest? I have no idea about him or his tract record.

    Sara Fargoons


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