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How to Invest in Gold and Silver

Since the days of panning for gold in the American West, this form of currency has always been a fail-safe for those looking for a concrete investment. While many people are interested in investing in precious metals, learning how to do so can be tricky.

Here are tips to consider when investing in gold and silver.

Buying coins, bars or gold jewelry

One method of investment requires setting aside a fixed amount of capital every month for gold regardless of the price. Money managers typically recommend investing anywhere from three to 10 percent of one's income on gold. Some even recommend investing up to 20 percent, but only if investors can afford the allocation of funds.

Once funds have been allocated, an investor needs to decide what kind of gold to invest in. This is an area investors need to research because the options vary widely. 

Gold bullion comes in the form of jewelry, coins and bars. It can be purchased in jewelry stores or online from a reputable company. Be careful of the premium you pay when buying gold so that prices do not have to rise too high before you can profit.

Gold coins are made and sold at a four percent markup from the national mint. The standard formula for determining the premium of a gold coin is: quoted price – spot price divided by the spot price multiplied by 100. This allows investors to see how high the price of gold has to rise before money can be made on the investment.

What are gold exchange-traded funds?

For investors uncomfortable with handling and storing gold itself, look into exchange-traded funds. By investing in one of the three ETF firms that are physical backed with gold, investors can introduce gold exposure into their own investment portfolio.

Check out SPDR Gold Share, iShares Comex Gold Trust, or ETFS Gold Trust.

By purchasing an EFT, an investor owns one-tenth of an ounce of gold. When demand outpaces the shares available for investors then EFT issuers buy more of the physical element to convert it to stock. On the flip side, when investors sell and there are no buyers, the gold is redeemed and the EFT company is required to sell the gold equivalent.

What are exchange-traded notes?

Investors up for a riskier investment can try exchange-traded notes. To do this, investors are required to give money to a bank for a fixed amount of time. Once maturity is reached, the bank pays the investor a return based on how the ETN performed. Some of the most popular ETNs are UBS Bloomberg CMCI Gold ETN, DB Gold Double Short ETN, and DB Gold Double Long ETN.

These ETNs can be traded long or short, but there is no protection of principal. Translation: Investors could wind up broke.

Investing in gold mining stocks.

Another way to invest in gold is through investment in gold-mining stocks. Because of the broader equity market that these stocks trade with they are more volatile than other forms of gold investment. Before picking a gold-mining stock company to invest in, find a company that has strong product and reserve growth along with good management and inventory.

Realize that investing in small gold mines that are still exploring is risky and investors could come up with nothing.

Investing in silver.

Many times investors choose to take a chance with both gold and silver.

Investing in silver is similar to gold in that investors can buy silver coins or ETFs. One of the easiest ways to invest in silver is to purchase silver bullion bars. The value of silver changes almost daily and investors are able to see how the silver is performing.

Coins are a popular way to invest in silver for people looking to diversify a portfolio and for those interested in nothing more than the thrill of collecting rare coins. The rarity of a certain coin drives the value of the coins up and adds some thrill to the process of investing. Be sure to obtain and keep documentation that shows how much silver an individual coin is made up of.

Investors uninterested in hanging on to the actual silver can take advantage of silver certificates. These allow for buying and selling of silver without having to transfer any physical metal.

Another way to get involved in silver investment without dealing with the actual metal itself is to get purchase exchange-traded stocks. This gives investors the security of owning investments in the metal without owning any actual silver.

Choosing gold or silver.

Investing in gold or silver can be risky, but that is true of investing in the traditional stock market as well. What investors like is that no matter what happens with paper currency, gold and silver are tangible forms of currency that have been used for thousands of years and neither show any signs of losing value.