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I am a part-time college student that has been facinated the stock and commodities markets since I was about 12. I am currently looking for dividend safe havens (the word safe is used loosely as I prefer riskier investments, however I understand I need to protect as well as grow my money) but... More
  • An Introduction To Gold And Silver 0 comments
    Mar 19, 2014 1:35 PM | about stocks: GLD, SLV, ZSL, AGQ, SIVR, DBS, USV, PSLV, GLL, IAU, DGL, SGOL, UGL

    The purpose of this piece is to serve as a guide to precious metals. I got into precious metals last year, and struggled to get all the information straight. Hopefully this will help others as a starting point to their research.

    Reasons to Invest

    There are two main reasons people buy precious metals. The first is to act as a hedge against inflation and a "safe haven" during economic downturns. Gold and other metals are hard assets that one can hold in their hand, which makes for a very attractive store of wealth. Man has never lost faith in the value of gold (and silver etc), so it will always have value whether or not the dollar crashes, major war erupts, or any other catastrophe that would rattle the foundations of the current economic system. Most in the investing community agree that it is wise to hold around 10% of one's portfolio in precious metals, or a precious metal ETF as insurance.

    The second is for use of bartering after a total collapse, not just as an economy, but as a society. The idea behind this argument is essentially the same: man has always valued precious metals. Because of this, people will need a medium of exchange to carry out trade. Gold and silver have been used for currency for thousands of years, which is why "preppers" often buy gold and silver to add to their "stack".

    Gold

    The yellow metal has been used in trade for thousands of years and universally traded among different civilizations. It is used mostly for jewelry, although it also has uses in electronics. For investors however, the value is in the safety and trust people perceive with gold. People tend to buy gold when a financial system collapses, or is not sound.

    The two main avenues to buy gold are through ETFs or in physical form. The most popular ETF is the SPDR Gold Trust (NYSEARCA:GLD), but there are many others as well. Physical gold may be purchased at coin dealers, or online.

    The most common gold bullion coins are:

    Gold bars are another common way to invest, however in an emergency they may not be as liquid as the popular coins.

    Silver

    Often called "poor man's gold", silver shares many of the insurance qualities with gold at a fraction of the price. Like gold, silver has also been trusted by civilizations in history as a medium of exchange, but has many more industrial and medical uses. With this underlining "real" demand, silver will never fall below a certain point, which theoretically protects the investor from extreme losses. Also like gold, the most common ways to invest in silver is via ETF (NYSEARCA:SLV) or in physical form.

    The most popular silver coins are:

    Silver bars and "rounds" are much more popular and much more liquid than gold. Mostly because the profitability of fraud is much smaller than gold. With the larger bars however (>10oz) there have been many schemes including the famous "drilled and filled" bars. There are millions of ounces of fake silver bars yet to be discovered, so it is imperative to only buy larger bars from a trusted source.

    The most popular silver bar manufacturers are:

    "Junk Silver" is a term used referring to currency that contains anywhere from 35% up to 90% silver. Collectors, investors, and preppers alike enjoy junk silver. Collectors appreciate the rarity of key dates as well as the historical aspect, investors like the universal recognizably of a currency coin, and preppers want to use the coins for small denominations of exchange in a crisis. Finding silver coins in circulation is fun, but extremely difficult. Dealers almost always have junk silver available for purchase.

    The most commonly traded junk silver coins are:

    • Pre 1965 Quarters (90%)
    • Pre 1965 Dimes (90%)
    • 1942-1945 Nickels (35%)
    • 1964 Kennedy Half Dollars (90%)
    • Franklin Half Dollars (90%)

    Canadian junk silver is also popular, but not as traded as the U.S. coins. Canadian dollars, half dollars, quarters, and dimes between 1920-1966 are all 80% silver.

    With any investment, it's important to continue studying the market and adjust your positions accordingly. Seeking Alpha is a wonderful place to study the long and short case for gold and silver. Also, always be sure to read the comments. The debates that take place are extremely informative and have change my mind on certain issues.

    This was not meant to be a one stop haven of information, but a starting point of the basics for further research. I had to dig all of the basic information alone. So if it helped someone jump-start their research, the goal has been accomplished.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I own physical silver, including bars, coins and junk silver.

    Themes: Precious Metals, Gold, Silver Stocks: GLD, SLV, ZSL, AGQ, SIVR, DBS, USV, PSLV, GLL, IAU, DGL, SGOL, UGL
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