Got Gold, Got Silver?
It is time to look at the possibilities for investing in the Precious Metals Sector. I will take a look at Physical Gold and Silver. Each person will have a varying risk tolerance, and a decision must be made before it is Summertime in the Precious Metals markets.
Let us begin by looking at the Physical markets. Have you ever held real gold and silver in your hand? Maybe it has been a 1 ounce Kruggerand, or a 1 ounce Silver Eagle. How about a 10 ounce gold bar, or a 100 ounce silver bar. This is the purpose of your investing in the current bull market in gold and silver. They are real products that you can hold in your hand. They also hold an incredible amount of value.
The beauty of the actual product is only surpassed by the natural beauty around us at all times. It may be a mountain landscape, a bubbling brook full of trout, or the inherent beauty of a desert. Guess where the product comes from? Physical is pulled from the earth in a very involved process called mining. When we purchase physical, we are taking home with us a part our favorite landscape!
The reasons to purchase physical other than the representation of "true monetary value" and the quality of the final product are varied. Some of these being:
- Perfect for the risk adverse
- You will achieve a measure of protection from fiat inflation.
- The physical product is readily converted into fiat currency.
- The products have true buy and hold capability.
- This is the easiest investment class to own.
- Long term appreciation value.
- A measure of safety from world events.
Okay, so now we understand a few of the reasons to own physical. Now what type of physical should we purchase? I strongly believe that a person investing and holding physical precious metals should get the most value for the fiat expended. By this I mean that collectibles or numismatics are not the way to purchase PM's. We should leave that to the persons who are studied collectors and want to speculate in the rising value of numismatics like baseball trading cards.
The way to purchase PM metals would be 100 oz bars, 10 oz bars, or 1 oz coins of Silver Eagle or Maple Leafs in silver. You may also look at .999 pure bags of silver coins. These are available in 710 oz bags and ½ bags are possible to buy. A 500 oz "brick" of Silver Eagles in its' original green shipping container is awesome! In gold, I prefer 1 oz coins or bars of varying size. You may purchase them with many countries of origin imprinted on them. The Kruggerands are South African, the Gold Eagles are of US origin, and so on. Harmony Gold of South Africa has a beautiful ten tola bar that is approximately 3.476 Troy oz per bar. What a sight to behold, while paying slightly over the current spot price of gold.
There are of course some things to be wary of when purchasing precious metals. In the last bull market of major proportions culminating in about 1980, there were reports of 100 oz silver bars that were lead filled. The point being, always buy from reputable dealers, persons you know that are providing you with the "real" thing, or have the product assayed before the completion of the deal. Remember, this is your savings and investments we are talking of. You are responsible to ensure the validity of your purchases.
What is my appreciation potential? Let us take a look at a few scenarios to get a handle on this-
Ex: I have $20,000 to invest in Precious Metals physical:
As I believe the growth potential is greater in silver than gold, I will designate 65% to silver and 35% to gold products. With prices today of approximately $325.00 for gold/oz and $5.00/oz for silver the following quantities could be purchased:
$20000 x 0.65 = $13000.00 for silver.
$20000 x 0.35 = $ 7000.00 for gold.
$13000.00 for silver / $ 5.00 per oz = 2600 ounces purchased.
$ 7000.00 for gold / $325.00 per oz = 21.54 oz purchased.
With a rising silver and gold price, I can expect the following returns on original investment:
At $400.00 gold and $7.50 silver
2600 oz silver x $7.50/oz = $19,500.00
21.54 oz gold x $400.00/ oz = $ 8,616.00
Total = $28,616.00 or a 40.58% gain.
At $500.00 gold and $10.00 silver
2600 oz silver x $10.00/oz = $26,000.00
21.54 oz gold x $500.00/oz = $10,770.00
Total = $36,770.00 or a 83.85% gain.
And just for the impossible which may indeed be possible:
At $1200.00 gold and $50.00 silver
2600 oz silver x $50.00/oz = $130,000.00
21.54 oz gold x $1200.00/oz = $ 25,848.00
For an unbelievable Total of = $155,848.00 or a 679.24% gain!!
A person can achieve the gains mentioned above while not exposing themselves to a greater risk of stocks, options, or futures. This type of investment is low risk due to the prices now claimed in the market for physical products. After a 20 year bear market, the fiat prices claimed for the metals are extraordinarily low comparatively. You will have the additional security of holding "real money", while at the same time the distinct possibility of achieving long term gains is very real.
All persons sometime within their lives are presented with opportunities and decisions to be made for their long term financial health. It is those people who seize the moment and make wise decisions that will have the capability to realize their dreams!
Have comments about this essay? Try me at firstname.lastname@example.org
Frank A Lechner
May 14, 2002
Lechner is an independent business owner and investor who has studied the markets over the past 20 years, dating to the last major bull run in precious metal investments. We had a mini bull market in the early 90's and he believes we are currently in the early stages of an equivalent bull market to the late 70's and early 80's.
This is not meant as investment advice. This is only an opinion of the rise and fall of a market relating to the seasons. Past performance is no guarantee of future results.