Investing in gold and silver

Recently there has been a fair bit of publicity from Warren Buffet, Charlie Munger, Bill Gates and others as to whether gold was a worthy investment. They all answered in the negative. However this misses the point. Gold is not an investment. Its savings – an alternative to cash. Its not designed to be productive. Its designed to maintain its value regardless of the political or monetary conditions of the time. It is thus a kind of insurance. No you can’t eat it, but you can generally exchange it for food or other items of value!

How to invest in gold

A couple of alternatives.

  1. Buy bullion (e.g. Perth Mint, ABC Bullion amongst others). Store it with them or at another location.
  2. Invest in a security listed on the ASX that tracks the price of gold (e.g. GOLD or PMGOLD).
  3. Invest in a company which mines gold (e.g. Newcrest Mining).

It is worth pointing out that the price of gold mining companies does not necessarily track the price of gold and is subject to all the exploration, operational, fiscal and political risks of  running a mining company.

What about silver?

Silver is sometimes called “poor man’s gold” since it is of much lower value (about 55 times less at time of writing).

Silver is likely to maintain its value in all situations, however historically it has not been as stable as gold.

Aristotle defined money has needing to have several qualities – durable, portable, divisible and consistent. Gold in my opinion has all these qualities. Silver has most of them – I would not currently regard it as portable. If I sold my home I could easily transport its weight in gold. Silver – not so easy.

So, silver is currently less like “money” than gold. In certain situations it may become more “moneylike”. If its low risk savings and / or insurance you’re after, gold is the better choice in my opinion.

More later!


Note: Nothing in this post should be construed as investment advice. Consult a professional before investing in any security mentioned.

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Analyst and Options Trader

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