More about gold and silver

The post about asset allocation from a few days ago has generated a great deal of feedback and questions.  I will answer each question personally, but I think there may well be some others with similar questions who perhaps didn’t wish to email me directly.  This brief post will address a few of the common questions about buying gold and silver.  I will do a later post on how to go about starting the saving/investing process, including finding a good advisor and/or how to educate yourself.  It’s not nearly as difficult as you think.

General thoughts about gold and silver

I think that gold is in a secular bull market and, though it will no doubt experience some violent corrections, the trend in price should remain.  It belongs in your portfolio, but it should not be ALL of your portfolio!

Since the TSX is naturally overweighted with resource stocks relative to most exchanges, most Canadians who invest have more exposure to gold and silver than they think.  As such, I think that UP TO 25% of your portfolio should be allocated to gold.  This percentage should be allocated lower for those with lower risk tolerance or those in need of a more income-oriented portfolio.

As an aside, I am actually more bullish on silver long term than I am gold.  My precious metals allocation is almost 50-50 gold and silver.  When I add to my holdings at some point, it will likely be largely in silver.

Buying physical gold and silver

If you want to buy physical gold, I have always had good luck with this company out of BC.  I have used their services several times in the past.  I have found their bid/ask spread to be reasonable (the bid is what they are willing to buy gold from you form while the ask is what they will sell it for….it reflects their profit margin).

For what it is worth, I suggest buying recognized gold, which has a serial number on it and is produced by a large, well-recognized bullion company.

If you don’t feel comfortable doing business online, go talk to your local Scotia bank.  They can get you all set up.

Buying gold/silver substitutes

I have always been a big believer in holding physical gold or an appropriate substitute.  I also like gold stocks, though I don’t want to get into specific advice about any one gold or silver stock.

If you decide to get your gold/silver exposure through a substitute, you do have some options.

Many ETFs that claim to hold gold, such as GLD on the New York Stock Exchange (the largest gold ETF in the world) actually engage in what is known as securities lending.  All you need to know about securities lending is that it creates multiple claims on the same underlying piece of property, in this case the gold.  That weirds me out!

A couple cool options for getting gold/silver exposure is through the Sprott Physical Gold and Physical Silver Trusts.  Both are independently audited and do not engage in securities lending.  You can exchange your shares for actual physical gold at any point, which is kind of cool.  More info can be found at both of the homepages.  If you are considering buying this, keep your eye on the NAV premium listed on the homepages.  Try to buy when the premium is low (below 5% if possible).

Other good options for gaining gold/silver exposure is the Central Fund of Canada, ticker symbol CEF.A on the TSX.  They don’t have a convertibility option, but they are independently audited.  They hold a mix of gold and silver.

Claymore’s Silver Bullion Trust, ticker symbol SVR.UN is another good one.  It holds physical, fully allocated silver.

Do your own research.  Decide for yourself how precious metals should fit into your overall asset allocation.  Above all, don’t blow your brains out on it!  Don’t go sell everything you own including all stock exposure to buy gold and silver.  You may win big or you may lose your shirt.  If you want to do that, go to the casino.  I view silver and gold as part of an overall investment approach.



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6 Responses to More about gold and silver

  1. jesse says:

    Perhaps asking a slightly different question might provide some perspective: what would cause you to become bearish on gold and silver?

    • Massive fiscal restraint, austerity, balanced budgets, all levels of society living within their means, central banks becoming net sellers once again, etc.
      I don’t see any of those in our future, except for a ‘surface level’ austerity.

  2. Jacen says:

    First time poster, love the site Ben, though in this case I certainly think a 25% allocation to PM’s is way too high at this point in the game.
    People always point out to Gold’s price increase since 2000, but I could show substantial gains in any industry/commodity if I get to pick the start and end date.

    If people get squeezed financially, the last thing they’re going to be able to ‘afford’ is gold or other PM’s. I’d appreciate your viewpoint on why you think silver has a greater near-term future? I’ve actually got more allocated to silver miners myself, though more by accident (capital growth) than intent, and have yet to re-balance.

    Anyways, this is a popular yet good read that konks a lot of the gold myths on the head, especially the ‘PPP’ it supposedly provides (i.e. could buy me a suit for the same amount of gold now as it did 50 years ago. Um. no.)

  3. Great point, Jacen. I emphasize that PM exposure should be no more than 25% of your overall portfolio. In most cases I would advocate less. In my case, I have been accumulating physical PMs for several years now. The run up in prices have pushed them to about 20% of my portfolio, a bit more than I had anticipated, but I’m not interested in selling physical bullion, so I’ll reallocate around it.

  4. Conust says:

    Is a very well written post….. Thanks so much for information. ….Sorry for my English

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