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Are Precious Metals a Smart Investment

Jul 24, 2020

Daniel Friedman

Buying physical gold or silver as an investment is not always as straightforward as it sounds. Novice investors often get lost in various options: "Should I buy minted bars or sovereign coins?" "Maybe that limited-edition coin would be a good investment?" 

Sensible investors evaluate bullion options by the price and premium on the gold spot price. But the premium is only one part of the equation. It doesn't necessarily mean that you'll get that premium back upon the sale. Worse, there are unscrupulous dealers out there. They will try to trick you into buying numismatics and other collectibles that have a considerable premium and won't retain their value over time.

Below, we are going to figure out if precious metals are a smart investment.

Let's start with the Pros of Precious Metals.


Are Value DenseThis is especially true with gold. You can hold $50,000 of gold coins in the palm of your hand, which takes up less space than a stack of dollar bills!


  • Tangible Assets

How many investments can you hold in your hand? Physical metals can't be destroyed by fire, water, or even time. And physical metals are unlike commodities because they don't need feeding, fertilizer, or maintenance.


  • A Store of Value

Many mainstream advisors claim stocks outperform gold. But that's not accurate. While precious metals seem like a defensive asset, you can actually earn a profit because gold is inversely correlated to traditional asset classes. When investors become risk-averse or are uncertain about the future of the economy or markets, gold is naturally pursued and thus tends to do well when other assets don't. Thus gold an excellent diversification tool for an investment portfolio.

  • Portable

You can take physical metals with you literally anywhere in the world. This is naturally easier with gold than silver, but if you need some traveling money or wish to store some metal in another country, you can do that with physical metals.


  • Can't Be Hacked or Erased

How much of your wealth is in digital form today? usIf your online world comes crashing down, or even if you'd just like some diversification away from the web, physical metals can provide that. A gold Eagle in your hand doesn't rely on electricity or the internet… can't be hacked or erased… and can be exposed to the elements more than your cellphone.


  • Require No Specialized Knowledge

If you don't know how to spot a real diamond, aren't familiar with the painter Van Gogh, or don't collect comic books, buy some physical metals. You don't need any special skills or training to purchase bullion. The bullion we sell is certified.  


  • Can Be Private and Confidential

How many assets can you say that about in today's world? If you want a little privacy or confidentiality, physical metals are among the very few investable assets that can offer this.


Here are some Cons to owning precious metals


  • Cost

Like virtually any investment you buy, gold and silver purchases entail a commission. And those commissions may be higher than stock or bond, though they are generally lower than real estate costs.

Premiums fluctuate according to market conditions, and also by a dealer, but generally speaking…


  1. Coins are more expensive than bars since they have more intricate designs.
  2. Silver is more expensive than gold since it costs just as much to manufacture as gold, but the product sells for much less.
  3. Online dealers are usually less expensive than your local coin shop, even with shipping fees, and may have a more comprehensive selection. Many online dealers waive shipping and insurance charges (usually billed as one fee) with a minimum purchase.
  4. Premiums on a rare coin or a numismatic product are considerably higher since these rare collectibles. Unless you want to become a collector, it's best to avoid these products, partly due to the excessive premiums.

Overall, while it costs more to buy bullion than other investments, premiums are not excessive. Industry margins are low, so premiums are not likely to come down much further and could rise if the market gets tight.

  • Storage

When you buy physical metal, you'll need to store it somewhere. You don't have to worry about "storage" with a stock or bond unless you decide to take the delivery of certificates. Bullion storage entails a fee if you pay someone else to store it for you, or risk theft or loss if you store it at home.

Using a storage facility or a safe deposit box at a bank entails an ongoing fee. However, if you buy a bullion-backed ETF, you also pay on an ongoing commission, which is used in part to pay for storage. You don't get a bill as you do from your bank or storage facility, but you're charged just the same. 

But it's not just the fee you have to consider. The security of the metal and the safety of you and your loved ones should be part of the decision process, too. If you keep all your bullion in the house, you could lose it in a robbery, fire, or natural disaster. A home safe is not foolproof, either; they only buy you time, since most can be broken into sooner or later, or a thief could demand you open it – while holding a knife to your sweetie's head.

A safe deposit box at the bank gets it out of the house, but it introduces other problems. First, the contents of bank boxes are not insured. Second, if you need your bullion in a hurry, but the bank is closed for the weekend or a holiday or some banking emergency, several banks were closed during 9/11, for example, you're out of luck. Last, one of the advantages of owning physical metal is that it's outside of the banking system – but using a bank box leaves it exposed to that system.


  • Liquidity

If you hold physical metal, it might not be immediately liquid. While some states have passed laws making gold and silver legal tender, you still can't buy groceries or a new car with gold coins or silver bars. You first have to convert to currency.

There's one way around this liquidity drawback: online storage. With an online storage account, you can sell your gold or silver at any time (during trading hours), just like a stock. This gives you instant liquidity, as funds are dispersed after settlement, usually within 1-2 business days, also just like a stock.

  • Taxes

Believe it or not, gold and silver bullion are recognized by the IRS as "collectibles." This means you pay a maximum of 28% capital gains tax if the metal is held for over one year. Taxes on long-term capital gains, such as stocks, on the other hand, are lower for most investors; the highest rate is currently 20%.

  • Don't Produce Income or Interest.

Last, one of the knocks on owning gold or silver is that they don't pay interest or dividends. Stocks and bonds, on the other hand, can easily do this. Real estate can provide rental income.


Weigh the options on your end, and you definitely should be able to see the best options.


For more information, please reach out to us!