Investing in Gold & Silver

    Published: 06-16-2009
    Views: 9,755
    Michael Maroney from Monex Deposit Company discusses the different ways that you can purchase gold and silver.

    Michael Maroney: Hi! My name is Michael Maroney from Monex Deposit Company. Today, we've been talking about how to determine if buying gold and silver is right for you, and now we would like to discuss the different ways that you can purchase gold and silver. The key is to understand the features, benefits, and risk of each one of these individual investments.

    In order to determine which investment is right for you, the individual investor, you first must determine if you are interested in a long-term investment or a short-term investment. And then whether you are looking at this investment simply for protection or you also looking for potential profits. Now let's look at the different ways that you can own precious metals.

    The most conservative in most people's minds is to buy the physical metal. You can either own coins or you can own bars. When you purchase physical gold, there are two things you have to determine. One, will I take delivery of the metal or two, will I have it stored in an independent depository.

    Normally when you purchase a gold bar, there is a very small premium above spot and when you purchase a gold coin, there is a larger premium above spot, but a small premium above the bar price. When you own precious metal in physical form, you could also finance the metal. Here at Monex Deposit Company, we will actually lend you up to 75% of the value.

    When you own physical precious metals, the tax considerations are very different than owning it in paper form. When you trade in the futures market, at the end of each year, you will be taxed based on a mark-to-market price. One of the ways that you can gain exposure in the precious metals is by owning a paper alternative known as the ETF.

    The ETF is an Exchange Traded Fund and basically, the value of this piece of paper will track the value of gold, silver, platinum, or palladium. One of problems with the ETF is there is counterparty risk. In other words, you basically own the right to sell a piece of paper that tracks the value of gold or silver, whereas it's not the same as actually owning gold and silver.

    One of the other features that exist within this investment is it is a diminishing asset, because each year, the value of this paper investment decreases by approximately 1%. One of the other ways for an individual investor to gain exposure to the precious metals market is by purchasing stock in mining companies. There is additional risk to owning an actual stock in a company that produces or mines gold other than owning the physical metal.

    There are numerous variables that determine the value of these companies and they may give you spectacular leverage, but it also increases the overall risk as far as investing in precious metals. The bottom line is very simple; if you want to make money in gold or silver, the best way to invest is owning gold and silver.