Gold and other precious metals can factor into an investment portfolio in a few ways, according to Lear Capital’s Kevin DeMeritt — ranging from rare coin purchases to setting up a specific type of individual retirement account.
If you’re interested in learning more about how you can invest with gold, silver, or platinum, the precious metal firm’s founder and chairman breaks down what three popular precious metals investment options involve below.
While a traditional IRA typically contains items like stocks and bonds, investors can also hold gold, silver, or platinum that has a specific purity level in a self-directed IRA.
You can roll over several types of retirement savings accounts into the self-directed IRA; any associated assets are kept in a secure, IRS-approved depository.
With a Lear Advantage IRA, for example, investors can purchase precious metals assets totaling $15,000 or more. A dedicated account team member helps guide them through the process, including setting up storage for the asset, and can answer any questions they may have.
“If you had a 401(k) or an IRA, and you’d like to take a portion of that and move it over to a self-directed gold-backed IRA, you can do that,” Kevin DeMeritt explains. “[It] takes you about five, 10 minutes to put the paperwork together. You don’t have to [roll over] your whole IRA; you transfer any portion that you feel comfortable with. We always recommend that you speak to your financial adviser to help determine what’s appropriate for you.”
The precious metal content in gold, silver, and platinum coins imbues them with value; in addition, only a limited amount of some coins were produced.
Precious metal coins’ inherent value has helped stabilize their price in past turbulent economic times when other types of investments didn’t always fare as well. Premium precious metal coin prices, for instance, performed well during all 15 recessions the U.S. has experienced since 1919. Stocks in the U.S. have followed a different trajectory; on average, U.S. markets decline by 32% during recessions, according to Yahoo! Finance.
Investors can purchase coins, such as bullion produced by a government-operated mint, from authorized precious metals dealers like Lear Capital, which offers coins via its website 24 hours a day.
In some instances, investors can essentially realize a type of double-play profitability from certain coins, Kevin DeMeritt says — if, for instance, a coin has a limited mintage, and an increase in demand for the precious metal it’s made from occurs.
“You get the price of silver moving up; [and] you can get the premium on that coin moving up because there’s just not enough of the coins out there,” the Lear Capital founder says. “If you go to the U.S. Mint as a dealer and purchase a silver 1-ounce American Eagle, usually you would pay $2.50 over the spot price for that coin. During the pandemic, they couldn’t run the mint as much as they wanted to. That $2.50 premium over the spot price of silver skyrocketed to $14 and $15 over the spot price.”
Gold Exchange-Traded Funds
Exchange-traded funds are a type of investment that are similar to mutual funds; people can collectively contribute to a fund that invests in stocks or other assets, and they each have certain shares of the investment pool, which can be traded throughout the day or purchased or redeemed at its close.
Retail investors, however, can’t redeem or sell ETF shares directly to each other; the shares can only be purchased and sold in market transactions. ETF sponsors enter into contractual relationships with one or more financial institutions — often large broker-type dealers who are permitted to purchase and redeem shares directly from the ETF in large chunks.
Because an ETF’s market price can fluctuate throughout the trading day, due to demand and other factors, it can be higher or lower than the fund’s net asset value per share, which represents the value of the ETF’s assets, minus its liabilities. The net asset value amount is calculated at the end of each day.
As the Securities and Exchange Commission notes, a number of ETFs can be passively managed, where the goal is to achieve a return that’s equivalent to a certain market index, or actively managed, with investments being bought or sold to support the targeted objective.
The SEC advises carefully reviewing the summary and full prospectus of any EFT you’re considering investing in to find out the ultimate objective, investment approach, risks, costs and other factors that will be involved.
One thing investors should be aware of is with a precious metal ETF, instead of physically owning 100% of the asset, you’re also investing in derivative contracts that are backed by a metal. If you choose to redeem a gold ETF you’ve invested in, you’ll receive money for the current value of the investment instead of actual gold.
Investors who are interested in physical ownership, according to Kevin DeMeritt, may prefer a precious metals IRA.
“You can be in complete control,” he says. “You’ve got all these third-party risks when you own the stock or an exchange-traded fund that you don’t have when you own the physical metal. For an exchange-traded fund, if they ship my gold over to [a] bank in England, where they’re going to hold 80% of it in physical gold and 20% in an options or futures contract backed by gold, if something goes wrong with [the] bank, how do I get the gold back over here? In most exchange-traded fund documents, it says ‘If there is an issue, we have the right to replace the shares with a like-kind asset.’ I don’t know anything that’s like gold, so I don’t know what other asset you’re going to give me.”
A number of investors feel precious metals’ performance record indicates the assets could be a desirable portfolio diversification addition to help offset losses from more volatile investments — particularly during economic challenges such as inflation, an issue the U.S. has been facing in recent years.
“It’s been a long time since we’ve had this kind of inflation,” Kevin DeMeritt says. “Inflation [reached] 15% in 1980; gold [went] from $50 an ounce in 1974 to $850. With inflation and a recession looming, people should consider precious metals as a hedge against some of the economic uncertainty. It [can be] a great time to add at least some portion of their portfolio into that asset category.”