The Downsides to Physically Investing in Precious Metals

The recent spikes in gold prices, and prognostications of doom for the global economy, have many investors considering the benefits of turning to precious metals as an investment. Throughout human history, precious metals (notably gold and silver) have been used for exchange, and they are thought to be of objective and tangible value.

In a world where fiat currencies change in value without much reference to “backing” or the “market,” there are those that believe that true value can be found in precious metals. While there are ways to invest in precious metals through stocks and funds, there has been an interest recently in physical metals.

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How Can You Invest in Physical Metals?

The most obvious way to invest in gold, silver, platinum and other precious metals is to actually get your hands on the metals. Gold and silver, especially, can be bought in coin form, in order to make it easy to transport and store. You can hoard coins, and hope they rise in value. It is also possible to buy bars, wafers and other forms of physical metals.

You can also invest in what are called “certificate” metals. Instead of receiving the physical metal physically, it is stored somewhere else for you, and you are issued a certificate that indicates how much of the metal you own. In some cases, you are merely told how much of the metal you own, while in others you actually receive a listing of the serial numbers corresponding to the bars that are considered yours. It is also possible to use GoldMoney and Bullion Vault to invest in electronic gold and other metals.

Realize, too, that there are metals ETFs that are considered “ownership” in physical metals. However, many die-hard physical metals investors are a little uncomfortable with this concept.

Downsides to Investing in Metals Physically

The upside to physically investing in metals is that you actually have something tangible — that you can touch — to show for your investment. And, if you believe that our current monetary system is on the verge of collapse, you will have the advantage in owning something that many believe possesses intrinsic value. Even if the system doesn’t completely collapse, physical metals can act as a hedge against future inflation, and increase in value.

Realize, though, that there are downsides to investing in physical metals. As you weigh the pros and the cons of investing in precious metals, consider these drawbacks:

  • Costs: Whenever you purchase physical metals, whether you buy coins, or invest via certificate, you pay a premium. You will pay more than the market value for the metal. Additionally, if you don’t store it yourself, on site, you will need to pay for storage. Certificate metals usually come with regular storage fees, and you will have to pay for transport if you have it delivered to your location.
  • Theft: There is always the possibility of theft when you have precious metals. You run the risk if you store it on site, at your home, and you also run the risk of having the storage facility robbed. If you store your precious metals in a safety deposit box at the bank, make sure that the bank has insurance specifically meant to cover such thefts; FDIC/CDIC insurance won’t do the trick.
  • Accessibility: If you store your precious metals at your home, then accessibility isn’t a problem. However, if you have certificate gold stored at EverBank or some other facility, you might not be able to easily access your stash. If an economic and civil apocalypse actually happens, getting access to your physical metals might be difficult. Even if you just decide you want your metals transported to you, you will still have to wait for shipment.
  • Liquidity: Precious metals might not be immediately liquid. In many cases, precious metals aren’t recognized as legal tender (the state of Utah in the U.S. is an exception, and not all coins are recognized). So you have to sell them for legal tender, or come to a barter arrangement, if you decide you need to convert your physical precious metals into actual, recognize money.
  • Taxes: Most precious metals in physical form are taxed as collectibles. In the U.S., this means that you pay a 28% tax rate on capital gains. So, if your precious metal increases in value, and you sell it, you don’t get special tax treatment like you would with long-term capital gains — no matter how long you had the metal in your possession. (The exception to this rule is jewelry, which isn’t taxed at all, since it is considered heirloom.)

Bottom Line

Adding some physical metals to your portfolio might not be a bad thing. It adds diversity and a measure of security to your holdings. However, you do need to carefully weigh the pros and cons associated with investing in physical metals.

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Comments

  1. says

    I think the downsides you mention are rather minor. Having silver instead of gold can make it more liquid. I think if you hold it, you own it. Physical is the way to go for smaller-time investors.

  2. Jason says

    alright really quickly… If you are taking what this article says seriously you need to educate yourself more. This article is very low quality almost laughable at best… I know that is not constructive but some articles are their to mislead you and divert your attention from what is really the truth. The truth if it can be boiled down into a few sentences is simply… This system was created by the international bankers and it is the product of a battle that has been going on for thousands of years between us the people of the world and the rich super elite. They have created money as debt as a way of enslaving you. Gold and Silver can not be printed out of thin air and have been considered real money for over 5000 years. They refer to gold and Silver as a commodity. That my friends is a lie and gold and silver has been only called that for the last 40 years when for the first time in human history they took the world onto a FIAT system. In a few short years the FIAT system which is based on an exponential system will collapse. And the people who will control this world will be the ones who hold physical gold and silver. Realize that this system was designed not to make you rich but rather as a wealth transfer mechanism to transfer your wealth, hard work and energy up to the rich elite of this world. This article is garbage. And if I dare say so is this website that purposely skirts around the real issues that plague this financial system. Educate yourself so you can have this system work for you. Cause its a great deal then. Free yourself from the chains of that they have put on your mind. So you can see websites like this for what they truly are… A joke.

  3. says

    I disagree with this article. Investing in silver and gold is a wise move. Especially if you can get them wholesale like with Preservation of Wealth.

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