Silver And Gold Investments
To differing degrees, both gold and silver may serve as a hedge in the event of an economic or market slump, as well as during prolonged periods of rising inflation. Understanding the differences between the two metals’ uses, economic sensitivity, and technical properties will help you decide which metal is best for your portfolio.
The Key Takeaways
Gold and silver can both be used to hedge your portfolio during economic or market downturns, as well as instances of rising inflation.
When economies improve, demand for silver rises, but it is more volatile than gold.
Gold can be a stronger diversifier than silver and is less vulnerable to economic downturns.
Physical metals, exchange-traded funds, and mining stocks and funds are all options for investing in gold and silver.
When deciding whether to invest in gold or silver, consider the following four factors:
1. Silver May Be More Tied to the Global Economy
According to the World Silver Survey, heavy industry and high technology consume half of all silver, which includes cellphones, tablets, automotive electrical systems, solar-panel cells, and a wide range of other items and applications. As a result, silver is more susceptible to economic fluctuations than gold, which has limited applications outside of jewelry and investment. When economies improve, demand for silver increases.
2. Silver Is More Volatile than Gold
Silver prices can be two to three times more volatile than gold on any given day. While traders may benefit from this volatility, it can be difficult to manage portfolio risk.
3. Gold Has Been a More Powerful Diversifier than Silver
Silver is a good portfolio diversifier that has a moderately weak positive correlation with equities, bonds, and commodities. However, gold is regarded as a more effective diversifier. It has consistently been uncorrelated to stocks and has very low correlations with other key asset classes—and for good reason. Unlike silver and industrial base metals, gold is less influenced by economic downturns since its industrial applications are relatively limited.
4. Silver Is Currently Cheaper than Gold
Silver is typically less expensive per ounce than gold, making it more accessible to small retail buyers interested in owning precious metals as physical assets.
How You Can Invest in Gold and Silver
One of the benefits of gold and silver is that they may be purchased in several investment forms:
1. Physical Metals
Unlike stocks and bonds, gold and silver can be purchased as tangible assets, such as bars and coins in a Morgan Stanley brokerage account or American Eagle coins in a retirement account. The metals would be held by a third-party depository, not Morgan Stanley, though investors might take physical delivery if they prefer to store them themselves.
However, holding bars and coins can have negative consequences. For example, investors frequently pay a premium over the metal spot price for gold and silver coins due to production and distribution markups. Storage and insurance fees should also be considered.
2. Exchange-Traded Funds
ETFs have become a popular tool for investors to obtain exposure to gold and silver without needing to store the physical assets. You can purchase shares and hold them in a regular brokerage account. The fund’s operator is in charge of covering the costs of maintaining a physical supply of gold or silver and charging an expense ratio. However, investment in an ETF does not grant investors access to the underlying metals. Furthermore, some precious-metal ETFs are taxed as collectibles and may not benefit from lower long-term capital gains rates.
3. Mining Stocks and Funds
Some investors see an opportunity in buying shares of gold and silver mining firms, as well as mutual funds that hold these miners’ portfolios.
Contact your Morgan Stanley Financial Advisor to learn how adding gold or silver to your portfolio can help you meet your long-term financial objectives.
Could Investing in Gold Expand Your Portfolio?
Given its low connection with other asset classes like equities and bonds, gold can play an essential role in portfolio diversification. Gold’s ability to operate as a “store of value” can help to reduce risk during periods of market turbulence and economic uncertainty. It may be useful as an inflation hedge. Furthermore, historically, gold has had an inverse relationship with the US dollar, which means that as the USD weakens, gold prices rise.
So, how can investors add gold to their portfolios in a realistic manner? Here are three major strategies to gain exposure:
1. Physical gold
Morgan Stanley brokerage accounts allow investors to purchase gold bars and coins, and retirement accounts can include gold-minted American Eagle coins. Investors may pay a premium over the spot price for gold. Morgan Stanley does not physically hold the gold. Typically, storage fees apply. Investors can even take actual gold and store it themselves. In such circumstances, delivery fees will apply.
2. Gold funds that own the metal
Some mutual funds and exchange-traded funds give investors access to gold. The value of funds with the most direct exposure is correlated with the price of gold. The fund bears the cost of keeping physical supply and passes it on to investors through the expense ratio.
There are various disadvantages: Some gold funds are taxed as collectibles, so they do not qualify for the lower long-term capital gains rates that equities do. Furthermore, because they generate no income, the cost ratio can deplete the principal year after year.
3. Mining companies
Investors can gain exposure to gold mining firms through equity investments, such as individual stocks or funds.
“The mining companies tend to be more volatile than physical gold,” says Michael Jabara, co-head of Global Investment Manager analysis, wealth management. The mining sector typically correlates with gold prices, but individual stocks may suffer company-specific risks, according to Jabara.
Even within this small market, selecting a fund can be challenging. Some funds own companies that mine a variety of precious metals; some are global, while others solely own small- and medium-sized mining companies. Investors may be unsure which option is best for their risk tolerance and asset allocation strategy. Jabara’s experts frequently collaborate with Financial Advisors to help clients select among the gold and precious metals ETFs they cover.
How to buy gold and silver
Here are some popular ways to invest in gold and silver today:
1. Save for retirement with a gold or silver IRA
A gold IRA (individual retirement account) or a silver IRA can help you invest in precious metals for retirement. These self-directed IRAs allow you to keep actual gold, silver, or other assets in an account that is eligible for the tax benefits of a traditional IRA.
Because not all financial institutions provide gold or silver IRAs, you may need to open a new account even if you already have one; however, you do not need to open separate accounts if you wish to buy both types of metals. Another alternative is to invest in assets such as gold ETFs through your traditional IRA rather than physical gold.
Specialized IRAs may incur higher fees than conventional IRAs. You may incur one-time account creation costs, annual administration fees, and even separate storage fees for the custodian who holds your gold bullion. However, fees for gold and silver IRAs can vary depending on a variety of criteria.
Before you invest, keep in mind that precious metals are dangerous as you approach retirement. Although gold investing can benefit investors of all ages, it may be preferable for younger ones.
2. Buy into gold or silver ETFs
If you are already familiar with traditional investing, one of the simplest methods to purchase gold or silver is through exchange-traded funds (ETFs). Gold and silver ETFs trade much like ordinary stocks through your stock brokerage.
The ETF provider often owns physical gold or silver bullion, and the value of those precious metals is reflected in the ETF share price. This strategy also saves you the expense of storing actual gold yourself. The ETF provider may impose a nominal annual management fee for the fund. Gold ETF costs typically range between 0.20 and 0.40 percent of assets, although silver ETF fees may be significantly higher.
3. Consider individual gold or silver mining stocks
Another way to invest in gold or silver without purchasing gold bars and coins is through shares in mining firms. This is primarily an indirect investment. In theory, as the price of precious metals rises, so would the worth of the corporations that mine them. However, stock prices can be influenced by a variety of other factors, depending on how these organizations function.
You can acquire shares in certain mining businesses in the same way you would trade technology stocks. Alternatively, you might purchase an ETF that invests in several gold or silver mining firms. Mining ETF fees may be slightly higher than those for bullion ETFs.
4. Stick with physical gold or silver
Purchasing real gold or silver bullion is another way to invest in these commodities. This comprises gold and silver bars and coins. Bars and coins may contain designs or images that make them collectible.
Some companies offer actual gold and silver online and deliver the metal to you. However, this may cost more than other methods of purchasing precious metals. Some actual stores buy and sell gold and silver, although they frequently charge a premium. Physical gold and silver purchase prices may be much greater than the commodity’s current trading price, sometimes known as the spot price.
After purchase, you must determine how to safely keep the bullion. Depending on the amount purchased, this might be as easy as a safe in your home or require additional fees for safekeeping at a bank.
Creating a Hedge
Some investors may believe they should cut their allocation to equities if the likelihood of a US recession increases, but as previously stated, investing in gold may be an option to explore. Historically, gold prices have risen as bond yields adjusted for inflation fell. In contrast, a stronger currency and higher yields, driven by improved global growth, would certainly limit gold’s upside.
While gold is not often seen as a long-term strategic investment, certain investors may want to explore including gold as part of a diversified portfolio.
Contact your Morgan Stanley Financial Advisor to determine which gold coins, bars, or ETFs are most suited to your portfolio.
Is gold and silver a good investment?
If you’re thinking about investing a modest sum of money, silver may be a suitable choice because it has more upside potential due to its industrial applications. However, if you intend to invest a greater quantity, gold may be a better alternative due to its scarcity and potential for higher gains.
How do beginners invest in gold and silver?
The most straightforward approach to investing in gold and silver is to purchase one or more exchange-traded funds (ETFs). The main advantage is that they are incredibly liquid, allowing you to buy and sell them from your brokerage account. This enables simple portfolio rebalancing and a cost-effective and hassle-free buying/selling process.
What is the cheapest way to invest in gold and silver?
Furthermore, gold ETFs often have fewer expenses than other investing options, such as purchasing real gold coins or bars. Most gold ETFs have minimal management costs, making them appealing to budget-conscious investors.
