by Perry Kyles, PhD
How and Why To Invest In Precious Metals Before
The general attitude among informed people is that the US stock market will crash sometime between 2019 and 2021. There are many indicators from various sectors that point to recession. An essential asset in your efforts to protect your holdings from a collapse is to purchase precious metals like gold and silver.
Are Gold and Silver Investments?
The simple answer to this question is yes. However precious metals are a different type of investment. Precious metals have unique properties that make them excellent tools to build a well-diversified retirement or investment portfolio. By diversifying with precious metals, you automatically limit you losses in a stock market crash.
In the previous post, I showed how gold has performed adversely to bear/down markets since 1971. Now is an ideal time to invest in precious metals. The American public has not accepted the reality of imminent stock market collapse. On June 20, 2019 gold surged to a five-year high of $1,390. It is not too late to get in on gold before it skyrockets over the next two years.
The graph below shows the rise in gold prices in the year 2009, which was a period when the public’s confidence in stocks was very low. In 2011, gold nearly reached $1,900. As the stock market began to turn upward and confidence returned circa 2012, gold turned downward and stabilized in 2014. From mid-2014 until today, gold has remained between $1,070 and $1,390 an ounce. Now would be a good time to invest in gold as a hedge against inflation.
While gold and other precious metals carry the possibility of robust profits, ideally their greatest attributes is as a store for money. They are tangible and easy to store. Gold and silver performances are adverse to the stock market. Precious metals prices remain strong and consistent during bull markets and skyrocket during bear markets.
While it has been an American tradition to take our chances with employee-offered mutual funds since 1924, it is important to know that gold has been used as a hedge against unstable monetary policies for millennia. The only reason that gold investing and gold ownership is no longer common is because President Franklin Roosevelt confiscated gold in 1933. When the US walked away from the gold standard in 1971, it became legal again for citizens to own gold bullion. Both US citizens and people of the world should take advantage of the various opportunities to invest in gold and other precious metals.
Here are 5 paths to gold and precious metal investment.
Gold and Precious Metals ETF’s
An ETF is an exchange-traded fund. ETFs have characteristics of individual stocks and characteristics of index funds. They are like stocks in that they can be bought and sold on the market like stocks. They are usually comprised of a number of different stocks. SPDR Gold Shares ETF (GLD), which is the largest gold ETF, sells shares of a vaulted store of gold held in London, England.
Below is the graph for the SPDR Gold Shares ETF (GLD), which is listed on the New York Stock Exchange. GLD’s gold is vaulted in London, England. It closed on June 18, 2019 at $127.12 a share. It is apparent that the graph of GLD’s share prices below mirrors the graph of gold prices in the above section.
GLD’s 3-year annualized return was 2.43% for 2014-2017. This will almost certainly rise every year over the next few years.
One of the shortcomings of precious metal ETFs is that the gold is not in your physical possession or your vault. If you are a US citizen with shares in GLD, then the directors of the tangible gold in which you have invested are bound by the geopolitics of a foreign country.
ETFs make it easy to invest in precious metals. Like any other investment class, they carry some risks. However, the only way to avoid risk is to choose the financial certainty that inflation will eat away at your savings.
Investing in gold mining and the mining of precious metals is riskier than investing in gold that has already been extracted and purified. It does not provide a great hedge like the gold that has already been extracted and purified.
Mining stocks can benefit from an upsurge in mine productivity or even expense-lowering mergers. Nonetheless, I would be quite hesitant to invest in individual mining stocks over an indexed gold or precious metals ETF. Having said that, I do see some potentially great investments. One of them is Kirkland Lake Gold (KL). In 2018 (KL) outperformed the S & P Commodity Producers Gold Index. The graph below reveals their stock price from June 19, 2018 to June 19, 2019. It is apparent that KL’s stock price has grown from $20.32 to $39.48 over the course of the past twelve months. The rise in its value can be attributed to a few different factors. The first is that gold prices were bound to rise since there is a mounting fear of a global economic crisis. Several countries throughout the world such as Russia and India are bolstering their gold reserves. Additionally, KL surpassed its gold extraction target volume by 28% in December of 2018. KL is likely to experience a dramatic rise at some point in the next eighteen months.
There are several other gold and precious metals companies that sell stock. Buying gold mining stocks directly from a broker has feast or famine potential. A mining company could be beset with barren mines or inefficiencies that affect profit margins. (Learn more about choosing stocks in the current economic climate.)
If your primary objective is growth, a carefully chosen gold mining stock is probably right for you.
Individual Retirement Accounts provide a practical approach to precious metal investing. For the year 2019, the IRA contribution limit is $6,000. The type of IRA that you have will determine the gold investment approach. If you are employed, communicate with your employer’s approved retirement custodian. If you are a business owner, look into a SEP IRA; it will likely be easier for you to invest in uncommon investment classes like precious metals or real estate with a SEP IRA.
Several employers offer a self-directed IRA or retirement plan. Traditional IRAs are often used to invest in the most common investment types, such as mutual funds, stocks, and bonds. Self-directed IRAs enable the holder to invest in uncommon investment types like precious metals, real estate, business endeavors, and more. IRAs have strong protection from lawsuits and bankruptcy although the degree of protection varies by state.
The process of buying precious metals with a self-directed IRA is very simple. The first step is to identify the company from which you would like to purchase, like SDbullion.com for example. That company will likely have a IRA custodian that they use to set up IRA accounts. The second step is to fund the IRA account. The third step is to purchase IRA approved metals. Accuplan.net enable the purchase of Bitcoin, precious metals, real estate, and self-directed 401k accounts.
They most commonly expressed issue regarding precious metals investing via IRA accounts is that the gold is not in possession of the investor. The gold is held in a vault by Brinks or another high-security storage vault. This concern is also expressed by precious metal ETF owners. With all investments, there will always be some degree of risk involved. Several custodians will allow account holders to visit their vaults.
Financial advisors often advise their clients to divert 5-10% of their assets to gold and precious metals. If you have been working for some amount of time, you might have hundreds of thousands saved for retirement. Depending on how much you have invested over time or how much that you divert to precious metals later, you may own several ounces of precious metals.
Vaults provide a safe storage place for your metals. When you buy precious metals through an IRA, those metals are vaulted until you reach retirement age. If you want to visit the vault and see the actual metals, you will need to choose a vault that will enable you to visit. If you fear government policy or some other kind of geopolitical issue, then it might be wise to keep your gold vaulted in Switzerland through a company like bullionvault.com. Bullionvault.com stores gold for .01% value of your gold holdings at a minimum of $4 per month. They store silver at .01% of the value of your silver at an $8 monthly minimum. They will ship your metals to you whenever you like.
A common complaint regarding vaulted gold is that the fee to sell the gold back cuts too deeply into the sellers’ money. Be certain to know the specifics of the selling process before you buy.
Precious metals storage is generally inexpensive and insured. Vaulted metals is a valuable option for a person that wants to own their own metals without the challenge of having to store it themselves.
When a buyer chooses to store their gold and metals themselves, they are responsible for the safety and protection of the metals. Do not store your gold in a safe deposit box. Traditionally, the contents of your safe deposit box are not covered by banks’ insurance. Banks cover your deposits, not your safe deposit box. Homeowner’s insurance typically limits the amount of coverage. They pay what you paid for the precious metals, not the spot, or current market price. By insuring the metals via homeowner’s insurance or precious metals insurance, you will be divulging that there are precious metals in your home. That inherently weakens your safety and security of not only the metals, but your home.
Gold and precious metals professionals suggest a safe and three layers of protection. For example, a safe under the floor with a rug and china cabinet over it would be a good idea. Remember, the metals presence must be imperceptible and often imaginative.
It is important that you do not unnecessarily reveal the location of the metals to anyone.
There are a number of options to invest in precious metals. The vehicle that you use should be determined by your circumstances. Vaulted metals have their benefits. If your precious metals are vaulted, even if they are vaulted through an IRA, you will not need to divulge the asset class to any legal entity. Even if you sell the vaulted metals and you fill out the Form 5498 or 1099, the actual asset class does not need to be divulged. Self-stored metals are easy to get to, but they can be stolen. They present a security challenge. Investments in the form of stocks or ETFs do not enable you to own precious metals that are segregated and fully owned by you. However, ETFs and stocks enable you to invest in gold and precious metals very easily, and also enable you to liquidate your metals quite easily. ETFs are a good strategy to use metals as a hedge against inflation or a market crash. Mining stocks have the capability to bring windfall profits, yet also run the risk of depleted mines or poor management.
Self-stored metals are easy to get to, but they can be stolen. They present a security challenge. Investments in the form of stocks or ETFs do not enable you to own precious metals that are segregated and fully owned by you. However, ETFs and stocks enable you to invest in gold and precious metals very easily, and also enable you to liquidate your metals quite easily. ETFs are a good strategy if you want to use metals as a hedge against inflation or a market crash. Mining stocks have the capability to bring windfall profits, yet also run the risk of depleted mines or poor management.
The political and economic landscape of 2019, precious metals are a necessary part of a well-diversified economic portfolio. Click here to learn more New Age Investing strategies.