Are you considering buying gold or silver on margin? The proposition certainly sounds enticing. After all, the potential rewards could be huge. But is it the wise thing to do? Let’s take a quick look at the facts about how it works and examine if it is a wise investment choice.
You hear it every day from the clean-cut, nicely dressed man on TV advertising that not only can you buy gold and silver from him, you don’t even need to pay for it all up front. He is so nice, he will let you put only 20% down and then he will loan you the rest of the money for your purchase. What a guy?
Well guess what? He doesn’t loan you the money to buy it for free. Typically firms that sell gold and silver on margin charge an interest rate on the amount you borrowed usually ranging from 1.4 to 2.6 times the rate of the best home loan rates. For example sake, let’s just say it’s 9% interest. Once you finalize the deal, the meter starts ticking, right then… and interest is charged every single day until you sell and the contract ceases to exist.
If gold and silver prices go somewhat sideways, it’s costing you money just to wait and stay in the game. The longer you wait, the more it costs you and the deeper hole you get into. If prices go down for too long, you may receive a margin call and be forced to come up with additional funds just to remain in your contract. If you can’t make the margin call, you are then forced out of your contract, at a loss.
Sure, if you time it correctly, you can make a good pop buying on margin. Some smart and lucky people make millions buying on margin. Margin may be the right choice for you if you are a professional trader or have loads of experience, have plenty of money, have plenty of time to sit there and watch the gold and silver markets like a hawk, and can afford to lose a lot of it, and are very lucky.
However, if that is not you…if you are an average person and if you like to be able to sleep at night…and not worry about losing your house if the market takes a sudden dip…then my suggestion is not to touch margin accounts with a 10 foot pole. I have personally known two people who have actually lost their personal residence as a result buying gold on margin…and they were considered “experienced.” Buying on margin is a two edged sword. You definitely have the possibility to win big…and you can also lose it all. It’s very tempting, but also very risky.
Personally….I believe investing in the actual precious metals themselves offers a great way to participate in the price appreciation of gold and silver, without having to bet the farm to do it and take such a high degree of leveraged risk. It’s kind of like renting instead of buying. When you buy it outright, you own it free and clear. When you buy on margin, it’s kind of like renting the gold or silver. There are countless thousands of people who have bought on margin once, got burned bad, and now avoid it like the plague. I believe it’s kind of like Las Vegas, you always hear about the few big winners, but behind them are countless losers. That’s why more people own physical gold and silver today than ever before. It gives them the security and comfort of actually owning something of real value and something that will protect the purchasing power of their investments and their dollars.
Source by Doyle Shuler
Buying Gold and Silver On Margin, Is It A Wise Choice?
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