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Gold and silver: 5 ways to invest

Toby Lambert, September 19, 2023September 19, 2023

Investing in precious metals, such as gold or silver, has historically been considered an investment in safe haven assets in the face of uncertainty and as protection against inflation. It is common to see that the price of gold appreciates in scenarios of macroeconomic uncertainty, such as the “rally” that we recently observed, due to the outbreak of the coronavirus and its impact on the global economy gold ira companies.

Investing in precious metals, such as gold or silver, has historically been considered an investment in safe haven assets in the face of uncertainty and as protection against inflation.

Gold reached new all-time highs in the month of July and is up +20% so far this year. Silver also approached its highs of the last 6 years and has risen almost +53% so far in 2020.

Below, we look at the evolution of spot silver (XAGUSD) since January, compared to spot gold (XAUUSD), the S&P500 index and the IEF ETF (representing medium-term North American treasury bonds).

The uncertainty due to the impact of the coronavirus, due to the trade war between the US and China, is leading investors to look for alternatives for their investments.

In the case of silver, other factors that are driving this bullish movement are the loss of relative strength of the USD, the increases in gold and the injections of liquidity into the US economy by the FED. On the other hand, 50% of the total demand for silver also corresponds to its own demand for industrial uses, which was revived again with the gradual opening of the economies and the consequent reopening of the industries.

In the case of silver, other factors that are driving this bullish movement are the loss of relative strength of the USD, the increases in gold and liquidity injections.

So how can we invest in gold and invest in silver? Below we detail 5 different ways to diversify and gain exposure to these precious metals

How can we invest in gold and invest in silver? Below, we detail 5 different ways.

  1. Invest physically in gold and silver

The oldest and most basic way to invest in gold and silver would be to physically acquire the metals, usually in the form of coins, bars or ingots. The quote is usually handled in Troy ounces, where each Troy ounce is equivalent to approximately 31.1 grams.

The oldest and most basic way to invest in gold and silver would be to physically acquire the metals.

Although the physical purchase of gold or the physical purchase of silver may be the most traditional forms of investment in these metals, it implies certain disadvantages , related to the fact that the investor will acquire an object that must be kept in a safe place, given its high price . For this, it is normal to resort to security deposit boxes, which have an annual cost. Furthermore, in the case of silver, since it has a lower value than gold, to accumulate more value we would have to accumulate more volume of silver.

Even if it is low, safe deposit boxes are at risk of theft, and that is why it is common to also purchase insurance, which should be added to the annual cost of the physical investment in gold or silver.

For all of the above, physical investment in silver and gold is expensive for individual investors, and it is common to resort to alternative forms, such as those detailed below.

The first two refer to financial derivatives (that is, instruments that involve the use of margin and allow going short), while the last ones refer to cash instruments (that do not use margin or allow going short).

  1. Forex: invest in gold or silver through the currency market

One of the possible alternatives to investing in silver or gold can be using derivatives, in particular, currencies or FOREX. In Forex there are a set of crosses relating to precious metals.

To invest in Gold or Silver through currencies, crosses that have silver (symbol XAG) or gold (symbol XAU) as a fixed currency are indicated.

Among them, we highlight the XAUUSD (which reflects the spot gold price expressed in US dollars) and the XAGUSD (which reflects the spot silver price expressed in US dollars).

Forex operations, being with margin, only request part of the nominal amount operated as a guarantee requirement. In the case of the XAGUSD cross, 5% is requested on the DIF Markets platform and in the case of the XAUUSD cross, 3% is requested on our platform.

Forex operations, being with margin, only request part of the nominal amount operated as a guarantee requirement.

As an example, this implies that, if we trade 10 Troy ounces in Gold, the nominal of the operation using an approximate price of $1,940 per Troy ounce, will be $19,400. Of this nominal value, only 3% is requested in order to cover the necessary margin, that is, 582 dollars.

  1. Futures: invest in gold or silver through the Futures market

Another very common way to invest in gold or silver as “commodities” is through futures contracts. Futures are contracts for a pre-established amount and expiration date.

In the case of gold, the most traded contract has the symbol GC and is a contract for 100 Troy ounces listed on the COMEX futures exchange in Chicago.

Futures are contracts for a pre-established amount and expiration date.

In the case of silver, the most traded contract has the symbol SI and each contract is equivalent to 5,000 Troy ounces.

Gold or silver futures can also be sold short, if the investor were looking to speculate downwards in price.

Eventually, one of the cons of futures trading is that the amount and expiration date are predefined and cannot be changed to suit the needs of the investor. Therefore, the strategies implemented with futures have to be well defined from the beginning.

There are also “micro-contracts” for gold and silver Futures , recently introduced, which are defined on 10 Troy ounces in the case of gold (and not on 100) and on 1,000 Troy ounces in the case of silver (and not over 5,000). Gold and Silver micro-contracts are an accessible option for retail investors and are listed on the COMEX futures exchange in Chicago.

  1. ETFs: invest in silver or gold using exchange-traded funds

ETFs (exchange-traded funds) are another alternative to gain silver exposure or gold exposure.

Among the most traded ETFs to invest in gold we find the GLD (SPDR Gold Trust) , and to invest in silver, the most traded ETF is the SLV (iShares Silver Trust) .

A silver ETF like the SLV or a gold ETF like the GLD try to reflect the variations in the price of the underlying assets, being a way to be directly exposed to these metals, but without buying them physically or operating on margin, but rather buying a share. -part of this exchange-traded fund and hold it, for all practical purposes, as if it were an investment in stocks.

  1. Shares: invest in shares of Gold and Silver mining companies

The last alternative that we want to mention consists of investing in shares of companies that are dedicated to gold or silver mining .

Logically, since the profits of these companies basically depend on the price of precious metals, it is expected that there will be a relationship between the price of mining shares and the price of gold and silver. However, this is not a linear relationship, since stocks as such are subject to the systemic risk of the stock market as a whole, even if they focus on a specific sector of activity.

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