Before investing in gold and silver

With the current price of gold and silver, it seems that gold and silver are good investments.

The newspaper and internet contain tons of conflicting information about investing in gold and silver.

Some people buy physical gold bars or gold coins.

Some people prefer silver, as they have the idea that gold is overpriced.

Analysts are warning of short term crash, but they are positive about long term price increases.

If you read too much about the conflicting perspectives, you will definitely suffer from information overload.

However, the basic principles apply.

You have to consider all these factors before investing in gold and silver.

1. Your capital

How much can you afford to invest?

You have to remember that there is no dividend payout for investing in gold and silver.

If you happen to buy just before the market crashes, you may have to wait for a long time before you can sell for profits.

That is why you must not need the initial capital for immediate future.

If you plan to buy a big ticket item within a year or two, you should not use the money for investing in gold and silver.

2. The transaction cost

It does not matter how you wish to invest.  There are many different transaction cost involved with each method of investment.

If you are trading gold and silver online, you have to pay for transaction cost.

If you are buying physical gold and silver bullions, you have to pay for the shipping, the insurance and the applicable tax in your country.

The best is to know the transaction cost for selling as well.

For example, you want to sell the physical bullions through a dealer, he will not pay you a high premium over spot rate.

You may have to ship the items over to the dealer.  You will have to pay for shipping and insurance cost as well.

3. Your risk appetite

Bear in mind that investing in gold and silver does not guarantee a profit.

Those who bought silver when silver price was at historical high of nearly $50 would not make a profit even at the current price.

Those who bought at that price would remember how the price of silver managed to fall below $4.

Can you imagine buying at $50, and the price fall to $4?  Can you still sleep if you are in their shoes?

The current price of silver per Troy ounce is still less than $41.  It is still far away from the historical high.

If you cannot tolerate the idea of losing money, you can forget the whole idea.

4. Your knowledge

Investment is partly science and partly art, that means a mixture of knowledge and luck. Since you cannot control your luck, you can do your best to control your knowledge.

You have to read and analyze the daily price change.

You have to know the relation between USD and the price of precious metals.  You have to know the relation between stock market and precious metal investing.

You have to know how crisis around the world affects the prices of gold and silver.

Even if you are not correct all the time in predicting a price change, you are able to make money when you are correct more than half the time.

Investing in gold and silver requires you to exercise caution, and not get affected by the general mood.