Our analyst recently conducted a personal experiment regarding his needs to sell precious metals. He needed to sell some long-term precious metals holdings to use for some surprise business expenses. He found himself wondering if he should sell these holdings now, with the market prices where they are worrying that they might rise after selling. Should he take out a business loan instead? And if he did sell, should he sell his gold or his silver?
Some of the precious metals he was considering parting with had been in his possession for well over ten years. He resisted the idea at first but ultimately decided that selling would be better than taking out a loan. Although interest rates are currently low, he felt more comfortable paying for this expense outright as opposed to locking himself into a loan, even a low-rate one. He decided that keeping his life simple was worth more to him at this time.
Ask Yourself These Questions
Our analyst took this experience as an opportunity to review the personal factors that go into the choice to buy or sell precious metals. Taking a look at macroeconomic trends and price analysis is important, but the many personal factors that go into investment planning are equally important.
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As an example, let’s take a look at making a choice between investing primarily in gold or silver. While this decision at its surface seems simple, it requires a lot of thought and consideration. You must consider:
- Do you intend to hold the metals personally or have them stored?
If you hold onto your metals personally, you don’t have to factor in the storage cost, which also means there is no record of the transaction held by a third party and privacy is maintained. However, your living space may not have enough room to store your investment and you will also have to be wary of theft.
At the current gold to silver ratio of 75-1, the price you will pay or the space required to store $10,000 worth of gold or approximately eight 1-ounce coins, is very small compared to what you’d need for the same dollar amount in silver or approximately 560 1-ounce coins. Keeping this in mind is very important when making your choice.
- What’s your risk tolerance and timeframe?
When both rising and falling, gold has a reputation of being more stable in value than silver. This is evidenced by the December 2015 low in both metals to the July 2016 highs, where gold increased by 32%, from $1045 to $1378 per ounce. During the same period, silver increased by 56%, from $13.65 to $21.25 per ounce. If, however, you were to look at the 2011-2015 time period, gold lost 45% of its value, from its peak at $1923 in 2011 to its lowest point of $1045 in 2015. Silver, however, felt an incredible loss of 72%- peaking at $49 in 2011 but then falling all the way down to $13.65.The lesson here is that when choosing between gold and silver, your timeframe and risk tolerance must be factored in. In a rising metals-price backdrop, silver tends to start slow behind gold, but then plays catch up on a greater percentage basis as time goes on. But when the metals do fall, gold maintains its value more than silver does and provides a buffer against the extreme volatility of the fluctuation of silver.
Storage and risk tolerance are only two broad topics of the important questions you must ask yourself before investing in physical precious metals. Other things to consider are premiums paid above the spot price, taxes, and the ability to travel or barter, all of which may or may not be relevant to you.
Overall, there is no right or wrong answer, there is only what works best to fit your specific investment needs. No one plan will work for every investor. You must consider your goals and how you feel about different risks involved before moving forward.
What Did our Analyst Decide?
In the choice between gold and silver for his specific situation, even though he has a long-term time horizon and a high-risk tolerance, he decided to sell silver to pay for his business expense. When he first decided to sell, he had thought he would end up selling gold. However, after evaluating his options and needs, he found that at this moment in time selling silver fit his needs better.
One of the factors that affected this choice was the fact that he will be moving soon, and being able to carry one box with a few gold coins seemed to be a much more discrete option than moving a box with hundreds of ounces of silver to his new neighborhood.
Someone else looking to sell may not come to that same decision, personal factors often end up weighing more heavily than market factors.
Overall, he was grateful for the fact that he had the capital, in the form of precious metals, available when he needed it. He advises that the disciplined accumulation of capital is one of the most powerful benefits of regular investment in precious metals.
After reading his thoughts and final decision, which do you think you would choose and why?