How Much Gold and Silver Should You Consider Possessing?
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History of Gold and Silver
Gold and silver are precious metals with an illustrious history. Gold has been a source of money for centuries across countless civilisations, including the Romans, Greeks, Egyptians, and Incas, among others. The ‘yellow metal’ was independently seen as a source of beauty and a store of value by various societies. The universal acceptance of gold’s value has been an important factor in developing a global economy across borders and cultures.
For the last 200 years, a gold standard has been in operation, meaning world currencies were backed by gold. Post World War Two, the US dollar was tied to gold at 35 dollars an ounce, a fresh gold standard and declared the world’s reserve currency. In 1971, however, President Nixon abandoned the gold standard to protect American interests. Since then, most global currencies became Fiat, meaning their value is backed by respective governments instead of a tangible commodity.
Silver was a form of currency alongside gold for various civilisations and was the second most valuable form of payment. Both metals have been valuable for centuries and continue to serve investors as a safe store of value. These precious metals also have multiple current industrial uses due to their durability, malleability, and ability to conduct heat and electricity. Industrial use increases demand which maintains competitive prices.
How Much Gold and Silver Should You Possess?
The amount of gold and silver you should possess depends on many variables. The most important of which is your individual goals as an investor. Most investors consider gold and silver to be conservative long-term investments. These precious metals serve as a store of value that can be relied upon during global economic turmoil. Long-term conservative investments into gold and silver can be done in a physical state (bullion). However, several investment vehicles exist to invest in the precious metal’s space, from Exchange-Traded Funds (ETFs), mining companies, derivative contracts (such as futures and options), and CFDs (Contracts for Differences).
Most investors’ sweet spot for investment into precious metals is approximately 5-15% of their overall portfolio, yet this will depend on the investor.
Reasons Behind Holding Gold and Silver
Gold and silver are prime candidates for investors looking to diversify their portfolios, given the inverse correlation between precious metals and other asset classes, like stocks and bonds (yields). However, while these precious metals hold value, they fail to generate revenue. Unlike stocks (and bonds), precious metals do not produce dividends (yield).
Some traders and investors buy and sell gold and silver simply from a speculative nature, seeking capital gains through markets such as futures or CFDs. Precious metals have a proven record of maintaining value for thousands of years. They are innately valuable, tangible commodities. Their finite supply means that prices tend to rise over time. Do note that this investment could be as simple as physically purchasing the precious metals as a tangible investment.
Finally, while this is debated, gold can also be used as a hedge against inflationary pressures.
Reasons Against Holding Gold and Silver
Most experts warn against holding a vast amount of physical gold and silver (tangible investments). Precious metals fail to produce dividends which makes them stale assets. They are expensive to purchase as physical sales are commonly made at the spot price. Some pieces of precious metals can have historical value leading to an even higher price.
They are also troublesome to store, given their physical nature and how much they are worth. Silver is particularly difficult as it takes up more physical space than gold, being worth less. These metals can also have liquidity issues in the physical market, making your gold and silver challenging to sell.
Some investors have stockpiled gold to protect themselves from a complete economic collapse which would see currency become worthless and those with gold wealthy. However, this scenario is improbable. Even though there is a possibility, those with natural resources such as food and water would likely have the most power. While the historical prices of these metals have been consistent, there is still volatility in the market which can affect prices over the short term. Different investments are more likely to provide returns for investors looking to make short-term gains from these precious metals.
Investment Types: Gold and Silver
Gold and silver represent valuable precious metals which have a multifaceted use. Around the globe, both metals are held as a source of value. These precious metals, as noted above, are often considered for investors looking to hedge themselves from the uncertain global or local economic future. Beyond physical gold and silver, CFDs and ETFs are other sources of investment vehicles through which short-term gains are achievable. Like other derivative contracts, CFDs allow investors to speculate on precious metal price changes in the market without owning the underlying asset. ETFs are an investment that pools specific securities which operate similarly to a mutual fund; however, ETFs are traded on the stock market. The final form of precious metal investing involves mining and manufacturing company stocks. If the commodity's future is positive, these companies have a higher chance of success.
Traders can invest in gold and silver CFDs through FP Markets. Consider opening a demo account with FP Markets and exploring the range of tradable precious metals.