Should you invest in gold or silver?

Thu Apr 7, 2011 8:57pm IST

A salesman displays gold ornaments at a jewellery showroom in Chandigarh June 8, 2010. REUTERS/Ajay Verma/Files

A salesman displays gold ornaments at a jewellery showroom in Chandigarh June 8, 2010.

Credit: Reuters/Ajay Verma/Files

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It is really important for an investor to first understand the economy and the financial systems prevalent in the market before he decides what to invest in. With the cost of crude oil having increased considerably per barrel, the government has also acted by increasing the price of petrol and diesel severely. Other stocks are now rallying to catch up with these prices.

Should an investor buy more gold or silver?

According to a research concluded earlier this year, precious metals were the best performing assets for the second consecutive year and also for the fourth time in the last five years. Investors enjoyed a 42% return by investing in precious metals in 2010.

Silver performed much better than other precious metals in the market in 2010 with prices rising by an astounding 80% which is two and half times the rice in price of gold (29%). Along with being deemed a safe investment, the relatively low supply of the metal as compared to the high demand has also contributed to the steady increase in price. In the first two months of 2011, silver’s price has increased at a steady 9.3%.

Judging by the present market scenario, investing in precious metals will be a very wise decision. Currently it seems like silver is as good or even a better bet than gold for investment.

What are the parameters one should consider before investing in gold or silver?

One of the main reasons investors prefer investing in these two metals is the stability witnessed in the market. Liquefaction is also an easy process for gold or silver bars and coins. Do note that purity of the mineral is of utmost priority and should be given its due importance.

Another important factor governing the decision on whether to invest in gold or silver is the price. Though the variation in the price of gold or silver is not as unpredictable as that of shares and equities, there still is a noticeable difference on a daily basis. However, when you are investing a large sum of money then this small difference can make a lot of difference. Hence, one should study the market carefully and invest when the price is relatively low.

Choosing the right vendor is also very important. If carefully observed then the price variations with wholesalers, retailers and commercial banks can be clearly noted. In this manner one can watch out for the purest gold available at a comparatively low price. For a regular investor, it makes sense to invest at regular intervals. This way one can take advantage of the market volatility. Investing in both gold and silver makes sense for a regular investor as he can diversify and can have a steady return irrespective of market fluctuations.

Different forms of investing in gold and silver

Other than dealing with shares and certificates, there are a number of ways in which one can invest in gold or silver. A few have been listed here:

* Bar: One of the most traditional ways, dealing with bars is very simple too.

* Coins: This sort of investment depends on the weight of the gold or silver coins.

* Accounts: Swiss banks provide a Gold-account option which aids in transactions involving the precious metal.

* Gold Exchange Trade Funds: This method helps gold transactions through the stock exchange.

* Spread betting: This involves predicting the rise and fall in the price of gold or silver before investing in it.

* Investing with mining companies: This is just like investing in the stock exchange. The only difference is that here one deals with shares from mining companies.

When is the right time to sell gold or silver?

With the current financial slump, people are selling their gold and silver as a means to make some extra cash. With the price of the two precious metals having reached an all-time high, it would probably be wise to hold on to it and see how far the prices soar and then cash in at the opportune moment.

There are two factors that govern the decision of the timing of a transaction involving gold or silver, the value of the US Dollar at that moment and the investor’s financial situation.

Usually, the price of gold is inversely proportional to that of the US dollar. However, most investors don’t have pure gold lying around in large quantities. So unless you are investing or speculating on a really large amount of gold or silver, the drop in the US Dollar’s value will not matter.

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