In this post, I will cover 7 reasons why you should invest in gold and silver. Nowadays, most investors avoid gold and silver because they do not generate any dividends or cashflow while the stock market is sky-rocketing on cheap, printed currency.
However, money printing will not last forever. Real investors who invest long-term already started to buy gold and silver while they are still cheap.
What is gold and silver?
Gold and silver are precious metals. Precious metals are rare, corrosion-resistant, high-value metals that are mostly used for jewelry, coinage and other high-tech applications. Gold, silver, platinum and palladium all together classify as precious metals.
However, investors use mostly gold and silver for investing purposes.
Precious metals have a very limited supply but high demand especially nowadays, when industry consumes more and more precious metals in various applications (jewelry, automotive, electronics, aerospace, medicine, to name a few).
What makes gold and silver special?
Firstly, it must be understood that gold and silver are real money. While shops or supermarkets would not accept it, gold and silver are the only assets that kept their value throughout history. No paper currencies ever survived for long periods of time.
Secondly, they have unique physical properties and in some industrial applications cannot be substituted by other materials. Thus, the industry needs increase gold and silver prices.
Thirdly, gold and silver have a limited supply. You cannot print them overnight or simply create more of them. Gold and silver are found in limited supplies and must be mined and refined prior to use.
Gold and silver cannot be hacked or deleted (I talk about physical gold and silver). Moreover, gold and silver can be bought privately and can be stored completely outside of the banking system. While you might ask why is this so important, in history, there were times when governments confiscated gold from people. And the easiest way to confiscate gold from people is when they keep it at the bank! Therefore, this fact is especially important nowadays, because our economic future is very blurry.
In addition, gold and silver do not require any skills or expertise (like the stock market does) and cannot go bankrupt. You can easily convert them into cash at any local dealer. Especially gold, it is easy to store, is tangible and portable.
Finally, many investors call gold and silver “ultimate safe-haven”. The next paragraphs will explain why.
Facts about gold and silver at a glance
Gold and Silver - real money
Historically gold and silver were used as money for thousands of years. In fact, gold-backed all currencies in the world until 1931, but from 1931 to 1971 – only partly. Unfortunately, in 1971 fiat currencies replaced the gold standard used for hundreds of years. The orange arrow in the graph below shows the abandonment of the gold standard.
As a result, the price of gold and silver started to rise since 1971. Look at the two graphs below. They both show 50-year price charts of gold and silver.
As you can see from the graphs, both gold and silver prices fluctuate and it is natural because of the price dependents on supply and demand. However, you can clearly see a trend – upwards.
Gold and silver do well when stock market crashes
Gold and silver do well in times of political uncertainties, stock market fluctuations or inflation. Look again at the charts above. Grey areas represent recessions in the U.S.
As you can see gold and silver prices are more or less stable during recessions. Moreover, compared with the stock market which plunges down during almost every recession, gold and silver always outperform it. In fact, precious metals are the only assets that historically have grown during recessions.
Look at the 40-year chart below. While the stock market plunges down (red circles), gold price stays more or less stable (black circles).
It is important to understand that usually with the recession comes deflation. Deflation can last up to a few years and the length of it depends on many factors.
During deflation cash increase in value. Because cash increases in value, gold and silver prices usually go sideways or can even drop a little. However, when deflation ends, gold and silver prices shot up like a rocket. Another reason to invest in gold and silver.
Gold and silver maintain their value
Have you ever thought that gold and silver maintained their value much better than paper currencies? Yes. Paper currency constantly loses its value because of inflation (and nowadays especially because of extensive money printing), while gold and silver don’t.
Look at the chart below. All major currencies have depreciated over the past century to gold. This chart shows perfectly the strength of the gold over long periods of time and for this reason, gold is a very great asset for your retirement portfolio.
Gold and silver are perfect for portfolio diversification
Each smart investor diversifies their portfolio – reduces the volatility of their portfolio. In particular, gold and silver suit very well for portfolio diversification because they have a low correlation with other assets.
Moreover, it is always wise to make many small investments instead of one big.
Do you know that most wealthy people have some gold or silver in their portfolio? Yes, they have. In fact, you can find a lot of information about that. Do you think that they buy it because they simply afford it? No. They buy gold and silver because of uncertainties in the world.
Central banks print money and set the lowest interest rates in history while at the same time governments constantly increase deficit spending. This makes the debts of countries even higher. In fact, debts of countries rise faster than their economies. Currently, the trade war between the US and China escalates. All these uncertainties lead many wealthy people to gold and silver.
Gold and silver have tax exemptions in some countries
One more reason to invest in gold and silver is that exist tax exemptions for their buying and selling processes.
Precious metals can be a very good investment because, in most of the countries, investment-grade precious metals are free of tax or with reduced tax. In some countries, there are even tax exemptions on the income from such investments.
For example in Europe, Germany has one of the best investing conditions in physical gold and silver. Firstly, physical investment gold has no taxes while silver coins (and silver bar coins) have only a 7% VAT tax. At least at the time of writing (October 2019). Secondly, you don’t have to pay any income tax on the income from sold gold or silver products if you held precious metals for more than one year.
Physical Gold and Silver can be used for retirement plans
Exist various retirements plans (e.g. a SEP, IRA, 401k, 403b or others). Did you know that physical gold and silver can be part of your retirement plan?
They can and they actually should be already in your retirement portfolio. Investing in precious metals is a very good long-term strategy because gold and silver only rise in prices long-term. Especially nowadays.
Gold and silver in your portfolio reduce its volatility because historically, gold and silver move in the opposite direction than stocks, bonds, real estate or mutual funds. Furthermore, they diversify your retirement portfolio.
Nowadays, political uncertainties and various events around ensures rising gold and silver prices in the near future. If you want to learn more, click here.
Gold and silver is extremely under-valued nowadays
It is a must to invest in gold and silver because they are extremely under-valued nowadays.
Look at the graph below. This graph shows the ratio between money supply (amount of dollars in circulation) and all gold prices on a respective day. Currently, gold price ratio to the money in circulation is almost at its lowest.
Silver graph looks more or less similar.
It means that gold and silver are extremely cheap nowadays and that there is a huge possibility that new peak will arise in graph. In that case gold and silver price will sky-rocket.
Precious metals cannot stay cheap for long periods of time.
Now you might ask:
“Are precious metals such as gold and silver a good investment?” The answer is yes.
Firstly, gold and silver are real money and history shows that all major currencies depreciate against precious metals in the long-term. However, it must be understood that gold and silver investments should be always long-term, especially in physical gold and silver. Gold and silver should be used to preserve wealth, not as a speculative instrument.
Secondly, look at the graph below. Central banks started to buy a lot of gold after the last recession. There is a reason why they invest in gold because they might know something that we don’t. I think it is smart to invest in the same assets as they do.
Thirdly, gold and silver hold their value during financial crises and recessions while the stock market is plunging down. Moreover, in most cases, they provide huge gains just after recessions.
Finally, gold and silver are perfect for retirement portfolios because of their long-term gains. You can find more information about it here.
According to many economic indicators, we are heading to the recession and it makes sense to prepare to acquire some gold and silver when the prices of them will slightly drop. However, it might be that their price will not drop as well.
Please remember. Do NOT invest all your money into a single type of assets, such as gold and silver. Always invest just a part of your portfolio in gold and silver if you invest in precious metals.
How can I invest in precious metals?
Gold and Silver can be bought both as a physical asset (e.g. gold and silver bars or coins) and as Futures, ETFs, or other digital financial instruments.
However, it is always advised to have some physical gold and silver instead of “paper” metals, because physical metals are real and cannot be hacked or erased.
Buying gold and silver
Nowadays, physical gold and silver can be bought online just like anything else. On the other hand, you can visit any local gold or silver dealer.
However, from my experience I know, that local dealers usually take around 3% of the price you pay for your metals. Depending on the size of your purchase, simple shipping can be cheaper in most cases.
You can find more tips in this article: 12 Tips and Tricks for Investing in Gold and Silver.
Nowadays it is also possible to buy physical gold and silver and store it insured in one of many vaults around the world.
My researched dealers
I researched for my self and found great physical gold and silver brokers around the world, that have the best price and customer satisfaction ratio.
Go check the current gold and silver price by yourself. Click the broker name below to open their websites.
Want to learn more about gold and silver?
I know a perfect book for you which will present in detail more than 100 years of history. You will clearly understand our current economic situation.
Moreover, from history, you can understand the importance of gold and silver nowadays.
The book written by Michael Maloney: Guide To Investing in Gold & Silver: Protect Your Financial Future (<- Amazon link) is one of the best sources to understand our current economic situation. I highly recommend this book.
Various gold and silver dealers were deeply researched and the highest service quality dealers were selected. Find them in our next post here.