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How to Invest in Gold and Silver

|Includes:VanEck Vectors Gold Miners ETF (GDX), GDXJ

I have written extensively on why and how to invest in gold and silver. Party because gold and silver is in the midst of a secular bull market with many years left, and partly because I see it as the best and safest investment moving forward.

Uncertain economic conditions, sovereign debt worries, and currency debasement are all factors that have driven investors to own gold. Because gold is not somebody else liability it offers safety and protection against risks such as inflation and a systematic breakdown.

There are a number of ways to invest in gold but make sure you start off buying physical gold before you get into any paper products. One of the reasons you own gold is for protection against a systematic breakdown and paper products such as GLD or IAU offers no such protection

Each person has a different risk tolerance but I personally recommend allocating at least 1/3 of your total portfolio into physical gold. You can either find a local dealer close to where you live or you can buy from a reputable dealer online. Just make sure you don’t over pay. You should not pay more than 5% - 6% over the spot price.

Once you have physical gold in you possession you can try to speculate on gold mining shares. They offer leverage to gold as their profits go up more than gold bullion itself and in theory they have more upside potential than the bullion itself. But they are inherently more risky and the sector as a whole has up to this point in the bull market underperformed bullion itself.

Don’t get me wrong there are plenty of companies that are going to do very well in this bull market but you need to do your due diligence before you put money into gold mining shares. I have written at length about different gold and silver mining companies, you can find articles at Seeking Alpha.

If you want to avoid the risk of picking individual stocks, index investing might be a better option for you. The following indexes offers exposure to both major production companies as well as more speculative exploration companies.

Market Vectors ETF Trust (GDX) attempts to replicate the NYSE Arca Gold Miners Index. GDX represents a mix of 30 small, mid tier and large capitalization gold mining companies. GDX’s holdings include some of the biggest and best producers in the industry, and they are far better positioned to withstand a downturn than many other gold mining companies.

Market Vectors Junior Gold Miners ETF (GDXJ) is made up of 72 junior gold miners. The index provides exposure to a wide range of small to medium capitalization gold mining companies globally that generates at least 50% of their revenues from gold and silver mining. Because of its holdings, GDXJ is more volatile than most other ETFs invested in precious metals. This ETF is suited for investors who wish to speculate on price movements in gold, but refrain from holding individual junior miners.

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Stocks: GDX, GDXJ