Given all the possible commodities to invest in, why bother with gold and silver bullion? There are many less expensive commodities, and certainly ones that are more easily obtained. And even if you do want to invest in gold and silver, why bullion when you can invest in mining stocks or Exchange Traded Funds?
I’m glad you asked.
The Physical Metal
While ETFs and mining stocks are valuable and have their place, I think that gold bullion or silver bullion in physical form has certain advantages over its paper equivalents — one of which is that it is physical.
If nothing else, the value and impact of your gold or silver are so much more obvious in physical form. You can see and understand what it is that you’re investing in, and it doesn’t take all that much space to store it, either. Plus, having a physical stash is kind of like having the ultimate rainy day fund.
While no one expects an economic crash anytime soon (despite the current downturn), it’s nice to know you have something easily accessible that has an intrinsic value, no matter what happens to the dollar, no matter how many “qualitative easings” we must live through, no matter the rate of unemployment.
Another positive aspect of having a stock of physical metal is that it won’t be lost through financial chicanery, taxes, stock market crashes, or simple corporate bankruptcy. There are just too many ways for ETFs and stocks to become worthless paper in an instant.
While there’s no guarantee that the value of gold and silver will always go up, let me re-emphasize a theme I’m sure you’ve already seen me mention a time or two at American Bullion: precious metals, especially gold and silver, are incredible useful, and they’re only getting rarer.
Let’s not even bother worrying about the use of gold and silver in jewelry. That’s a matter of style, not substance. The real value of both metals lies in their use in industry.
It’s possible to dispense with gold and silver in electronics, for example, but nothing works as well for conducting electricity; and gold never tarnishes or corrodes under normal circumstances. Until someone invents a cheap room-temperature semiconductor, its demand in electronics isn’t going to drop.
Silver is less valuable in electronics (since it does corrode), but it’s still very useful, and has many other uses in industry, including in medicine.
One Contraindicator for Gold and Silver Investment
While gold and silver are still being mined on Earth, they’re becoming more and more difficult to find, and many of the remaining deposits are harder to refine. This is a big plus for investors, because if gold remains in demand, its value can only increase as the in-ground reserves dwindle.
One thing that might reverse this trend is if some enterprising investor looks for gold sources elsewhere in the solar system. Even a rocky asteroid, for example, is likely to contain huge amounts of recoverable gold and silver, amounting to trillions in value.
Now, it’s unlikely that this will occur anytime soon, given our moribund space programs and the international treaties that forbid the exploitation of other celestial bodies for corporate gain.
But if you ever see on CNN that someone’s planning to start mining asteroids in the next few years, that might be a good time to start selling your gold and silver bullion off — because the introduction of new precious metal sources will certainly drive the prices down.
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I’d love to hear from those of you who have thoughts on this. Leave me your comments below.