When inflation rears its ugly head, a lot of investors move into tangible assets such as gold and silver. After all, a 1-ounce gold coin would buy a suit of clothes in Colonial America, and 1 ounce worth of gold will still buy a suit of clothes today. Most modern department stores aren't set up to trade gold for clothes, though, so if you're going to invest in gold or silver assets, you need to keep some things in mind about investing in these kinds of assets.
Bullion is the physical form of precious metals such as gold or silver that is valued by its weight, rather than its appearance, condition or rarity. Gold or silver bullion comes in bars or in coin form, ranging from less than an ounce to 1,000 ounces. Bullion coins represent one of the easiest ways of investing in tangible gold or silver. The U.S. Mint produces American Eagle gold coins in 1-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce sizes. American Eagle silver bullion coins only come in the 1-ounce size. The U.S. Mint also produces 1-ounce American Buffalo gold coins. Eagles are made from 22-karat gold, while Buffaloes are made from 24-karat gold. Other popular bullion coins include the Canadian Maple Leaf, the Austrian Corona and the Mexican 50 Peso coin.
You don't have to buy physical gold or silver to have exposure to these precious metals in your investment portfolio. Instead of buying bullion, you might consider buying stock in the companies that mine the ore. Precious-metals mining companies may have mining operations in both domestic and foreign regions, adding a global element to your portfolio. A portion of their value comes from their gold and silver holdings, but they also have a number of other valuable assets, including their real estate, equipment and management expertise.
Precious-metals Mutual Funds
Rather than putting all of your eggs in one basket, consider investing in a precious-metals mutual fund. Depending on the fund's investment objectives, the fund manager may invest in a variety of precious-metals mining, refining, production and distribution companies. They may hold significant amounts gold or silver bullion. They may convert the bullion to cash or cash equivalents if management believes the price of gold or silver is about to drop. A precious-metals mutual fund gives you the twin advantages of diversification of your assets and professional management of your funds, while still adding gold and silver to your portfolio.
Internal Revenue Service regulations prohibit having collectibles, including metals and coins, in your Individual Retirement Account, but the IRS makes an exception for U.S. gold and silver coins minted by the Treasury Department. While gold and silver has historically been viewed as a hedge against inflation, the market price of these metals does not always rise or fall in lockstep with the Consumer Price Index. Like all investments, there is a risk of loss and many investment advisers consider precious metals to be on the speculative end of the investments spectrum. If you own gold or silver bullion, you will need a safe place to store it, such as a bank safe-deposit box. Unlike stocks, bonds or savings accounts, bullion does not produce any interest or dividends. The only way you can make money on an investment in gold or silver bullion is if the market price increases.
- U.S. Mint: American Eagle Gold Bullion Coins
- U.S. Mint: American Buffalo 24-Karat Bullion Gold Coins
- U.S. Mint: American Eagle Bullion Coins for Investors
- Securities and Exchange Commission: Invest Wisely -- An Introduction to Mutual Funds
- CMI Gold & Silver: Gold Investment Information
- CMI Gold & Silver: Silver Investing
- IRS: Publication 590 -- Individual Retirement Arrangements
- U.S. Department of the Treasury: 1900-Present
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.