Are Silver and Gold Liquid Investments?

Investors seek a combination of security and liquidity. Silver and gold are typically thought to be sources of security and good inflation hedges. But, are silver and gold liquid investments? Before posing the question, are silver and gold liquid investments let’s look at what constitutes investment liquidity. Liquidity is the relative ease of turning an investment into cash. Investments like real estate are hard to turn into cash in a hurry, unless you have a loan agreement with a mortgage lender in which you can draw on the equity of your property. Stocks are typically liquid investments but when the market crashes you may need to sell at a terrific loss in order to see your cash. Even then you will not have ready access to cash for a day or two unless you can transfer it electronically from your trading account. Bank accounts are probably the most liquid unless you consider raiding the children’s piggy bank. We have posed the question before, is silver a good investment. Now, are silver and gold liquid investments?

There are two sets of answers to the question are silver and gold liquid investments. The answers have to do with how to buy silver and how to buy gold for investment. Traditional gold and silver bugs buy and hold gold and silver bullion, either as bullion coins or bars. Alternatives are to buy mining stocks or, especially in the case of gold, exchange traded funds that track the value of gold. In the first case the individual needs to bring or send his gold to a dealer in order to sell it. In the second case the individual can buy and sell stocks online and move his money to a money market account with his brokerage firm. Gold investors with a more than a few ounces of gold will commonly keep their gold in a secure storage facility. These facilities are always separate from the offices of the gold dealer from whom the individual buys or sells gold. Thus it is not just a matter of going to the safety deposit box and taking a few bars or coins to the dealer to sell. A large quantity of gold or silver may require an armored vehicle and security guards.

Investing in gold stocks and exchange traded funds is a means of maintaining liquidity while taking advantage of the investment advantages of gold. The same applies to silver mining stocks. Are silver and gold liquid investments in the cases of mining stocks and exchange traded funds? They certainly are. There are advantages and disadvantages to investing in these vehicles but lack of liquidity is not one of them. Gold and silver mining stocks will typically outperform bullion in a rising market and fall faster in a down market. A well designed and managed ETF will typically do a good job of tracking the price of gold bullion and will offer the advantage of instant liquidity when trading such stocks online. So, in the end, are silver and gold liquid investments? It depends on how you invest.

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    1. Some people buy silver bars but hold onto them even through the short-term price spikes. They hope to dispose of them at a much later date when there is significant rise in price. The difference between this category and the former (the speculators) is in the fact that in this case, there is value addition.

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