Recently I needed to sell some of my long-term precious metals holdings. The reason? I had to pay for some unforeseen business expenses. When the prospect of selling some physical metals first dawned on me, at first, I felt resistance to the idea. How could I sell now, at current prices? What if prices rose after selling? Would it be better to sell my gold or silver? Maybe I should take out a business loan instead?

These were all questions that arose soon after I began to contemplate the logistics of the transaction.

And they are important questions. After all, some of these precious metals I have been holding for well over a decade.   

In the end, I would indeed sell the metals. This was instead of taking out a loan. One could argue that with today’s low interest rates, I might have been better off locking in a low-rate loan. However, it felt more sound for me to pay for the expense outright at this juncture. Perhaps the value of keeping life simple is worth more than a specific amount of dollars during certain periods.

Questions to Ask Oneself (Gold or Silver?)

In completing the transaction, I began to review how many personal factors go into the decision to buy or sell precious metals. In this series of articles, we often focus on macroeconomic trends and price analysis. Yet, there is an equally remarkable number of personal factors that must go into each’s investment planning:

For example, let us consider the simple question of choosing whether to invest primarily in gold or silver. (Or, platinum or palladium for that matter).

What on the surface seems like it should be a simple question is often found to require a multi-faceted thought process. For example, one must consider:

  • Does one intend to hold the metals personally? Or, have them stored in a vault?

The benefits of holding the metals personally are that one does not have to pay for storage. Additionally, no third party ever has a record of the transaction. So one maintains privacy. However, the downsides are that storage space may be limited. And one’s living space may not be suitable for this. Concerns of theft may also exist.

And indeed, let’s look at the present gold to silver ratio of 75-1. The amount of personal space and fees to store $10,000 worth of gold is small. (approximately equivalent to eight 1-ounce coins). This compares to the space to store the same dollar amount of silver. (560 1-ounce coins). These practical considerations are paramount for some.

  • What are the individual’s risk tolerance and time horizon?

Gold is known to be more stable in value than silver. This is both when the metals are rising and when they are falling. For example, let’s look at the December 2015 low in both metals to the July 2016 highs. Gold rose 32%. (from $1,045 per ounce to $1,378). Meanwhile, silver rose 56% over the same timeframe. (from $13.65 per ounce to $21.25). Which is a nice outperformance by silver.

However, let us consider another period: 2011 – 2015. Gold’s in its peak in 2011 at $1,923 to its low over four years later at $1,045. The metal lost 45% of its value. Meanwhile, silver, (which peaked at $49 in 2011), lost an incredible 72% in falling to $13.65.

Choosing Between

The point is: in choosing between gold and silver, an individual must weigh its time horizon and risk tolerance. In a rising metals-price backdrop, silver tends to lag gold initially. Then, it catches up on a higher percentage basis later. It may, therefore, be more appropriate for long-term investors with higher risk tolerance. However, when the metals fall, gold tends to hold its value more so than silver. Gold provides a buffer to the extreme volatility of silver’s fluctuations.

These two broad topics – storage and risk tolerance – are just two of the critical issues an investor must ask himself.  This is especially true when engaging in physical precious metals transactions. Of course, there are other considerations as well. One is that premiums pay above spot price. The second is taxes. The third is the ability to travel and barter with the metals easily. These are all factors that may or may not be necessary for an individual.

In the end, there is never a right or wrong answer. The questions lie with the individual. No single plan of action will serve all investors. One must consider a realistic examination of one’s own goals and tolerances for risk.

“Know thyself.”

-Ancient Greek proverb, Temple of Apollo at Delphi

 

Which Did I Choose?

So in the end, which did I end up selling to pay for the business expenses? Gold or silver?

It was not what I thought I might have sold in such a situation.

I do have a long-term time horizon. My risk tolerance is high, Yet, I choose to sell some silver to raise my funds.

Why? I’m planning a move in the near future. The thought of discreetly carrying a few gold coins with me to my new home was appealing. It was better than transporting a box with hundreds of ounces of silver to a new neighborhood.

Again, this might not have been the right choice for everyone. Or even myself in a different circumstance. But, for the present moment, it was right for me.

And in the end, I felt a sense of gratitude to have had the capital. Capital that was in precious metals form. Which was available when I needed it. Ultimately, I have seen that the disciplined accumulation of capital is one of the most potent benefits of regularly investing in precious metals.

Which do you choose as your precious metal of choice – gold or silver – and why?


Christopher Aaron,
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. This is where he specialized in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq.

Technical analysis shares many similarities with mapping. They both base on the observations of repeating and embedded patterns in human nature.

His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is a third-party analysis. It does not necessarily match the views of Bullion Exchanges. Readers should not consider it as financial advice in any way.

2 Comments

  1. I like both gold and silver. But if I had to pick one, it’d be gold simply because of the storage space required is far less than silver. Like stated, several thousands of dollars worth of gold can discreetly fit in a coat pocket or similar. The same can not be said bout silver. Going off topic here, I do think the Perth Mint should consider putting the gold kangaroo coins in mint tubes versus the capsules. The mint tubes are much easier for transport.

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