Gold and silver traditionally have been seen as stable investments that are particularly suited for times of financial uncertainty. The old wisdom goes that when the stock market or economy is in turmoil, investors put their money in commodities like gold and silver.
But some people also borrow money to buy gold and silver. Find out whether taking out a loan for gold or silver is a good choice below.
Using a Personal Loan to Buy Gold and Silver
The reason some people use a personal loan to buy gold and silver is that when interest rates are low and the price of gold and silver is going up quickly, the price of gold and silver could increase at a higher rate than the amount you’ll pay in interest on your loans.
Of course, this isn’t a good investment strategy for everyone.
Why a Gold or Silver Loan Makes Sense
- Buying gold and silver, unlike stocks, tends to be less volatile compared to other investments. However, you could still face losses with any volatility.
Why a Gold or Silver Loan Doesn’t Make Sense
- Not everyone will be able to qualify for a personal loan at an interest rate that’s low enough to ensure they come out ahead after factoring in the increase in value of gold or silver.
- There is plenty of risk in this investment. If the price of gold or silver goes down, then you might not end up making money. Therefore, it wouldn’t be a good investment for anyone who can’t afford to lose part of their investment.
Current Interest Rates
If you’re intrigued by the idea of borrowing to buy gold or silver, you’re probably wondering just how low the interest rates currently are compared to the value of gold or silver.
Interest rates are low, with the prime rate currently at 4.75 percent. Check out our page to compare rates from the best personal loan companies.
What Are the Returns on Gold?
With current interest rates, would you make money borrowing to invest in gold? Gold returns can vary greatly depending on the time period.
For example, in the past year, gold has increased in price by more than 8 percent. That might make you want to rush out and buy gold, but you should know that in the past three years, gold has increased in price by 13.5 percent, which works out to an annual return of 4.3 percent – less than the amount you would have likely paid to borrow money over those three years.
More concerning is the fact that, in the past five years, gold decreased in price by 15.5 percent – or 3.3 percent per year. That doesn’t necessarily inspire confidence in an investor to take a risk and borrow in order to invest in gold.
What Are the Returns on Silver?
Did silver fare better over these same time periods? Unfortunately, it fared worse. In the past year, silver decreased in price by just under 6 percent. In the past three years, silver increased in price by just 4.5 percent or 1.5 percent per year.
But probably the most concerning is that in the last five years silver lost 43 percent of its value – or 10.5 percent annual loss.
Unless you’re a sophisticated investor, you’ll likely end up losing money by taking out a loan for gold and silver. Furthermore, you’d have to keep paying your loan, even if you have no profit to show for it.
But even if you are a sophisticated investor and think you can predict when the price of gold or silver is set to skyrocket – remember that no one can time the market.
Author: Jeff Gitlen
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