Throughout the ages of man, gold and silver have been sought after. And in modern times, it is no different. Apart from the fact that gold and silver look good in jewellery, it has many other uses. Some of these uses outshine or surpass that of the jewellery industry. In ancient times, kings and queens were adorned with gold and silver. Owning these precious metals was a sure sign of wealth and prosperity. From our earliest days, gold was used as a trading commodity and for a long period in human history, the amount of gold a country had in the bank was directly linked to the strength of that country’s monetary value. In today’s blog post we will take a look at whether you should invest in gold and silver, or not.
In order for us to answer such a question can be both easy and difficult. The easy answer: If you can, yes! But when please keep the golden rule (no pun intended) of investing in mind if you decide to buy stock in one or both of these metals. Do not put all of your eggs in one basket. Be sure to diversify your investment portfolio!
Even though the quick and easy answer is that you should invest in gold and silver if you can, we have to tell you why. Moreover, we have to help you to form an objective opinion on the matter, so we will talk about both the positives and negatives related to investing in gold and silver. It would be easier to talk about the metals separately, so we’ll first look at gold and its place in the global economy. And then, we will do the same for silver.
Gold is probably the most well known precious metal out there. South Africa is a world-leading gold producer and became rich because of our famous Witwatersrand gold deposits. Moreover, Johannesburg, City of Gold, was built and became a world-class city because of gold. We still have some of the highest grade gold ore in the world and the world’s deepest gold mine is in South Africa.
Uses of Gold
Gold is not only used to make people look beautiful. Sure, that is probably the most well-known use of gold, but it is by far not the most important function of gold. Let’s look at the uses of gold.
- Obviously the jewellery industry.
- Form of investment
Out of all of the elements on the periodic table of elements, gold Is the most conductive. On top of that, it is less likely to tarnish than most other elements. For that reason, it has become increasingly popular to use gold in modern day electronic devices. Where at first we used copper, gold has replaced it, because it can conduct more electricity more effectively. This leads to faster microchips. Hence we get faster computers and faster smartphones. Current studies at Berkeley University, California are underway to see if gold can be used in super batteries and it seems like they are getting positive results.
Availability of gold
Gold is a scarce commodity. Over the past three to four years roughly 3100 tonnes of gold were mined and beneficiated annually. According to the US Geological Survey, there were about 57,000 tons of global gold reserves left in 2018. So if we keep up the trend of mining 3100 tonnes of gold per year, the currently known global gold reserve will be mined up by the year 2037. That is 18 years from now, in case you were wondering.
But what does the availability of gold have to do with whether you should invest in it or not? As a matter of fact, quite a lot! You see because gold is such a sought after commodity and because of its scarcity, the chances are very good that any gold you buy will appreciate in value.
Why Invest in Gold
So what? What if gold has many uses and is scarce? Does all of that mean you should invest in it? In and of itself, those are good reasons to invest in something. However, in the financial world of stock markets and traders, the value of gold lies in the fact that the gold price governs itself. It is not linked to other stocks or markets. On the contrary, when other stocks plummet, gold soars!
Here are some of the reasons why you should invest in gold:
- Gold serves as a good hedge fund – Investors protect themselves from economic collapse by investing in a hedge fund. Hedges are basically securities against the failure of your other investment. Traders typically use gold as such a fund because historically gold prices increased greatly in times of stock market collapse. During the 2008 economic crisis, the price per fine ounce of gold more than doubled.
- Good buffer against inflation – As living costs increase, so does the value of gold. Moreover, when inflation goes up traditional stock markets tend to decrease in value. So once again, where your stock falls short during times of economic uncertainty, gold can make up for that loss.
- Great for portfolio diversity – We’ve already mentioned the golden rule of investing in stock. But it can’t hurt to talk about it again. It is an excellent idea to invest in a wide variety of stocks and bonds. One of the commodities that one should have on his/her diverse portfolio is gold. Don’t put all of your money into gold though, Just like you shouldn’t put all of your money into any single other commodity or stock.
Pitfalls to be careful of
All that glitters is not gold and gold does not always glitter. Unfortunately, we can’t tell you that gold is foolproof or an absolute guarantee. There is a downside to investing in gold as well. Keep that in mind when you decide whether to invest in gold or not. Here are some downsides to investing in solid gold:
- Possible low investment returns – Even though gold can keep its value for a long time, it doesn’t guarantee that gold appreciates in value over a short period of time. It can even retain similar values for extended periods of time. Unless there is a stock market crash, the value of gold will stay more or less around the same range. So if you want to make a quick buck, investing in gold might not be the ideal way to do so.
- There are no dividends – If you buy solid gold and put it in the safe, you won’t earn any dividends or cash backs on your gold. So it will just stand there and do nothing until you sell it. In which case it can bring you a pretty penny…
- The value of gold is in favour of the buyer – What does this mean? Simply that, if you have gold and you want to get rid of it, you will only get as much money as someone is willing to pay for it. If you don’t get buyers, you might find yourself in a pickle!
When it comes to silver, South Africa doesn’t come close to the top as a producer of this precious metal. But on the flip side, silver is also an ancient currency. In fact, there are some sources that claim more silver has switched hands than gold over the last two millennia. So it is also established as a trading commodity with historical value, just like gold. It has a rich history that can be traced up to 5000 years back!
Uses of Silver
Just like gold, silver has many uses. But most of its uses don’t seem as noble as the uses of gold. However, whether the uses are noble or not, silver is still a sought after precious metal! Here are some of it’ common uses:
- Jewellery industry
- High-end mirrors
- Dental alloys
- Smartphone accessories
Like gold, silver is highly conductive and is used in electrical circuits and contact points. It is also used in the production of batteries. Interestingly, silver is used in the clothing industry! Silver has antibacterial properties and as such it has the ability to contain body odours. Crazy as it may seem, silver nanoparticles are woven into clothes to make the clothing odour resistant. Another ingenious use of this precious metal is how designers started putting silver thread in gloves. With silver threaded gloves, you can operate your touchscreen without having to take your gloves off. Quite handy for those cold winter months!
Availability of Silver
It is much more readily available than gold. Silver is more often than not produced as a byproduct of lead-zinc, copper or gold ore production. Whereas gold production has a finite lifespan and might see the end of large scale production within the next twenty years, silver production seems to have a better future. But this can change because silver is becoming more popular in the industrial world and the demand for silver from that sector is increasing. Currently, global silver production is at around 20,000 tonnes per annum. Some experts say that this production will not be enough to supply silver to an ever-growing market.
Why Invest in Silver?
In this category, gold and silver are the same. Both precious metals can serve as a hedge against economic collapse, they are both great buffers against inflation and is good for the diversity of your investment portfolio. But there are more reasons to invest in silver, here they are:
- It is cheap when compared to gold – Where the current gold price is $1283.65 USD per fine ounce, silver sells for $13.62 USD per ounce. So you can buy almost 100 ounces of silver for one ounce of gold. Sure, this implies that gold is more valuable than silver. But hey, if you can’t afford gold but you still want some kind of hedge to cover for your other investments, silver might be worth spending some money on.
- The value of silver increases faster than that of gold – Over the duration of some of the worst stock market crashes in our history, the price of silver climbed faster than that of gold. Maybe it is because silver is more affordable for the average man on the street.
- Global silver inventories are running low – Because silver is no longer used to coin physical money, government institutions started selling off their silver stockpiles. But they didn’t realise that silver will become such a versatile industrial metal. So once mines can no longer supply industry with silver, it will be up to private silver owners to sell their silver to the industry. There might be some money in a venture like that…
Silver has the same pitfalls as gold. You won’t get dividend payouts for owning silver. You will also be at the mercy of whoever wants to buy the silver from you, should you decide to sell.
It is not a bad idea to invest in gold and silver. But please! Don’t spend all of your money on these precious metals. Having gold and silver in your investment portfolio will certainly be beneficial to you. However, having a portfolio that consists only of gold and silver might be a bad idea. If you feel very strongly about buying into these two precious metals, you can always invest in mining stock like Anglo Ashanti or Harmony.