Investing in gold and silver bullion: the case for and against
Gold and silver bullion attract strong opinions. Some see metal as the only real money; others see an inert lump that pays nothing. Both views contain part of the truth. This page sets out the main reasons people hold bullion, then the counterweights that deserve equal attention. It is general information, not advice, and it does not try to say whether bullion belongs in any particular portfolio.
Why people hold bullion
No counterparty risk for physical metal
A share depends on a company, a bond on a borrower, a bank deposit on a bank. Physical gold or silver held directly depends on no one: it is not someone else’s promise to pay. If a financial institution fails, a bar in its owner’s possession, or held in an allocated vault account in the owner’s name, is still there.
This advantage is specific to physical metal held directly or on an allocated basis. Funds, unallocated accounts and derivatives reintroduce intermediaries, as explained in our comparison of ways of investing in gold and silver.
A long history as a store of value
Gold has been used as money, as a reserve and as a store of wealth across many civilizations and centuries, and central banks still hold large amounts of it today. Silver also served as money for a very long time, and many currencies were once defined in it. That history does not guarantee anything about the future, but it explains why metal is still widely trusted as a reserve that sits outside the financial system.
Over long periods, gold has tended to preserve purchasing power better than paper currencies, which lose value through inflation. Over shorter periods, its real value can fall substantially and stay lower for years.
Diversification
Gold’s price is driven by different factors from those that move shares and bonds: interest rates, currency movements, inflation expectations and demand during periods of stress. As a result, it has often moved differently from other assets, and at times has held up when markets fell. That relationship is not reliable, but its tendency is the main reason gold appears in discussions of diversification.
Silver offers less of this effect, because its industrial demand ties it more closely to the economic cycle.
Practical qualities
- Global recognition: standard coins and bars from major mints and refiners can be sold in most countries.
- Divisibility: a holding can be split into coins and small bars and sold gradually.
- Durability: gold does not corrode; silver tarnishes but does not lose metal.
The honest counterweights
No yield
Bullion produces no income. It pays no interest, no dividend, no rent. The only return comes from a change in price, which may be negative over long stretches. When interest rates on cash and bonds are high, the opportunity cost of holding a non-yielding asset rises.
Storage and insurance cost
Metal must be kept somewhere safe. At home, that means a safe, discretion and an insurance policy that actually covers bullion. In a vault, it means annual fees that, compounded over years, take a noticeable share of any gain. Silver, being heavy and bulky for its value, costs more to store per unit of value than gold.
Spreads and premiums
Every purchase includes a premium above spot, and every sale happens at a bid below the dealer’s selling price. Small coins and bars carry the widest gaps. A price rise is needed just to break even after a round trip, which makes bullion poorly suited to frequent trading.
| Cost | When it applies | Larger for |
|---|---|---|
| Premium over spot | on purchase | small bars, coins, collector pieces |
| Spread (ask minus bid) | round trip | small items, silver, less-known brands |
| Storage and insurance | every year | silver, larger holdings |
| VAT | on purchase in the EU and UK | silver bars (investment gold is exempt) |
In the United States, sales-tax treatment of bullion varies by state.
Volatility, especially for silver
Gold can fall sharply, and has spent long periods well below previous highs. Silver is typically more volatile still: its smaller market and its industrial demand amplify movements in both directions. Anyone holding silver should expect wider swings than in gold.
Security and liquidity in practice
Physical metal can be stolen, lost or forgotten. Selling requires moving it, having it checked and finding a buyer, which takes longer than selling a fund. Our page on gold bullion buyers covers the selling side in detail.
Weighing it up
The case for bullion is strongest when its role is clear: a reserve outside the financial system, a diversifier, a long-term store of value. The case is weakest when it is expected to generate income or quick gains. Those who hold metal tend to do so as one part of a wider set of savings rather than as the whole of it.
For the choice between the two metals, see gold vs silver. For an overview of all four investment metals, see precious metals investing.
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