If you have not ever invested in silver and gold, you will probably be prone to making the same mistakes that other amateur precious metals investors have made over the years. Let’s take a look at some of these common mistakes, and how you can avoid them.
Mistake #1. Failing To Properly Consider Silver And Gold Investing
Some investors fail to even consider investing in silver and gold at all. In fact, investing in silver and gold is a legitimate, and accepted means to protect yourself against inflation, and uncertain economic times.
Mistake #2. Failing To Understand the Concept Of A “Hedge”
In the past, most people interested in investing in silver and gold did not understand that the best way to use silver and gold is as a “hedge.” A “hedge” is an investment tool that is used to protect yourself when the financial markets move against you. The price of gold and silver tends to increase in value during times of inflation, and recession. As a result, when stocks go down during inflation and recession, gold prices go up.
Mistake #3. Believing That Investing In Silver And Gold Is Difficult
In the past, you had to purchase silver and gold one coin (or bar) at a time. Because the market was so illiquid, gold prices charged by dealers and coin shop owners varied widely from location to location. However, now your options for investing in gold and silver and varied. Purchasing and selling are easy because a large liquid market exits for precious metals as well as their derivatives.
Mistake #4. Believing That You Have To Own Gold Bars Or Coins
Of course, if you want physical gold, you can purchase silver and gold bars (or coins) over the internet, and have them delivered safely and quickly to your door. However, if you are more comfortable owning securities, you can choose one of the many stocks, and mutual funds that are backed by the value of the silver and gold in their investment portfolios.
Mistake #5. Believing It Is Difficult To Sell Silver And Gold
Unlike selling gold jewelry, selling silver and gold bars, bullion and equities is easier because gold and silver are traded in more standardized forms. The market value for gold and silver backed equities is calculated daily. In fact, you can get a quote from any news outlet. Quotes for your gold backed securities are updated minute by minute, just like any other stock. If you want to sell, place a sell order with your broker in the same manner as you would sell any other equity or security. If you want to sell physical coins or bullion, you simply arrange the transaction over the phone or internet, and mail the silver and gold to the dealer. He sends you a check in the agreed upon amount.
Mistake #6. Failing To Understand “Spot Price”
“Spot price” is the price that is quoted for immediate (spot) settlement (payment and delivery). Spot settlement is usually two business days from trade date. To sell silver and gold bullion, you need to know the “spot” price of the commodity. The dealer will quote you silver or gold prices at a certain number of dollars (or a certain percentage) “under spot.”
Mistake #7. Failing To Understand How Junk Silver Is Sold
Circulated pre-1965 silver coins are called “junk silver”, because they have no numismatic (or collector) value. However, they are 90% silver bullion and are sold at “times face” value. The dealer may quote you “15 times face” or “25 times face” per coin depending on the spot price of silver. Simply research the internet to determine the going rate on junk silver. Then you can determine if you are getting a good value.
Mistake #8. Failing To Understand The Difference Between Gold Investing And Coin Collecting
Gold and silver coins with numismatic value are valued differently. Do not use the same methods to value collectible coins as you do to value gold and silver bullion.
Mistake #9. Failing To Consult An Investment Adviser
You and your investment adviser should carefully evaluate your investment objectives as well as the risks and costs associated with investing in silver and gold bars, bullion, coins, or equities.