How to Invest in Gold and Silver (2024)

Investing in Physical Forms of Gold and Silver

Physical gold and silver are, of course, the original ways people invested in these popular precious metals. Wearable wealth like jewelry was followed by coins and more standardized forms of physical gold and silver. Today, investors have two categories of precious metals to choose from: bullion and jewelry.

Buying physical gold and silver in either of these forms generally involves going through a dealer. This can either be done online or in person, with reputation being the key factor in choosing, followed by markup and fees. The structure of the physical gold and silver market means dealers play an important role in verifying the purity of the metal being purchased and usually offer complementary services like storage and insurance.

Investing in Gold and Silver Bullion

Gold and silver are both mined from deposits in the earth’s crust. This raw form is then extracted and refined before being alloyed. The amount of alloyed metals depends on the application. Gold, for example, is alloyed with silver or copper to give it more strength when being formed into jewelry, while gold bullion should contain the bare minimum of alloys needed to keep it firm.

Bullion is a term that encompasses physical bars and coins, but we’ll deal with the bars first. Bars are formed rectangles of gold or silver that are 99.5% or higher in terms of purity. Bars vary in size from under an ounce all the way up to 400 ounces. Bars have a stamp that is the equivalent of the manufacturer’s label indicating the weight and purity. One of the reasons a reputable dealer is essential is because there are many ways to create counterfeit forms of physical goods like a gold bar.

Gold bullion was once considered to be strategically important to national governments because some currencies followed a gold standard, where the currency was backed by a physical equivalent of gold and could, in theory, be traded in for gold. Since the 1970s, however, we have been operating in a fiat currency system. Therefore, when people are turning to gold as the last store of value in fear of a financial crisis, they are usually looking at gold bars as a way to protect against fiat currencies.

Regardless of individual reasons for wanting to invest in gold and silver bullion, bullion bars come with some of the highest barriers. For instance, they have to be stored securely, should have insurance, and must be physically sold to realize gains. A major risk with gold bars is that they can be stolen. They can also be hard to liquidate in larger sizes. This means investors have to think about the size of the bar—10 one-once bars are easier to parcel and sell than one 10-ounce bar—and where it is kept.

Outsourcing this to a service provider is a natural solution, but it becomes an ongoing cost and a drag on eventual returns. Moreover, although bars are the purest form of physical gold or silver, they are still value-added, formed products with a markup over melt value and dealer-specific fees or charges (shipping, storage, insurance, etc).

Investing in Gold and Silver Coins

Gold and silver coins, also called bullion coins, straddle the line between an investment asset and a collectible. Unlike utilitarian bullion bars, gold and silver coins have an aesthetic value that often causes them to be priced above their simple melt value. The more beautiful a coin is, the more rare it is, or the more demand there is for a coin for whatever reason, the higher that coin's numismatic value will be.

Gold coins come in ounces and fractions of ounces (half ounce, quarter ounce, one-tenth ounce, etc.) and are priced at a premium to their melt value on original sale from the mint. After that, the value of the coin can uncouple entirely from the melt price if it is deemed collectible and sees high demand. Generally, however, the melt price is the floor for a gold or silver bullion and will fluctuate along with the gold or silver spot price.

American Gold Eagles, Canadian Maple Leafs, and South African Krugerrands are well known types of gold bullion from their countries’ respective mints. Mints are the national bureaus that act as the sole manufacturers of legal tender in a nation; they are permitted to produce commemorative bullion coins. The U.S. Mint provides a product schedule where collectors can watch for new releases.

As gold and silver coins are rarely traded solely on their melt value, they are more of a collectible than an investment. Investors can access bullion coins through the same dealers that trade in bars, and can also order directly from mints. While this introduces markups and fees to the equation, coins are smaller in size, which helps to keep shipping fees lower than what is typical with bars. These coins do offer some of the same features as bullion bars in terms of diversification and low correlation with the financial markets. They also come with similar risks, however, requiring secure storage and insurance for any large collections.

Investing in Gold and Silver Jewelry

As the last category for investing in physical silver and gold, jewelry sits the furthest from traditional investing. While the markup from melt price for a gold coin can be 50% or more, the markup for jewelry can be many times the actual market value of the metals making up a particular piece. Jewelry has more in common with art than bullion bars, and an authenticated piece with a famous former owner can trade at whatever value the market will bear.

Jewelry containing some amount of precious metals is more widely traded than bullion, but this can actually make it more challenging to find reputable dealers in the secondhand market. Authenticity and confirmed purity is critical in pricing jewelry, but the aesthetics or history of a piece can completely change the market value. This doesn’t completely erase the inflation hedge and store of value aspects, but it does weaken these benefits.

When it comes to market valuation, the subjective nature of jewelry, the similar needs for secure storage and insurance, the higher risk of fraud, and the lack of any recurring yield make jewelry more of a collectible than an investment.

What You Need to Open a Brokerage Account

The type of brokerage account you need depends on the type of precious metals investment you are looking to make. For investments into silver and gold funds and mining stocks, a simple brokerage account will do. If you intend to trade futures and options, you’ll have to confirm the brokerage provides these options.

Personal Information

Opening a brokerage account requires the same basic pieces of personal information as most financial accounts. This includes:

• Your name, address, and telephone number
• Tax identification number (usually your Social Security number)
• Date of birth and government ID

With most brokerages operating online now, you’ll likely need to provide an email address to create an account. Prior to investing, you will need to answer some questions to establish your income level, investment experience, net worth, and so on. These personal questions are part of the know your client rules.

Minimum Deposits

Many brokerage accounts no longer require a minimum deposit. If you are looking to access gold and silver investments through ETFs, you can get started with very little as some brokers even offer fractional shares of these ETFs.

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