In light of the recent economic ups and downs of the last decade, economic stability is something almost every American craves. With one of the worst economic crashes since the Great Depression just five years ago, many families are still feeling the aftereffects of the flattening of both the national and international markets. For wealthy families, the crash meant the loss of hundreds of thousand dollars. For the average American, it meant losses to critical investments like IRAs and pension plans. Many people who experienced the pain of the market’s instability are still feeling vulnerable, and a number of them are still looking for solutions to relying on the market for their investments. A strategy that is becoming increasingly popular among all sorts of individuals is investing in natural resources and commodities that are not restricted by the market. Those who feel most strongly about protecting their finances have been turning more and more frequently to precious metals as a primary component of their portfolios.
There have been a number of stereotypes in recent years surrounding investing in precious metals, namely gold. In the last decade, the media has depicted gold as an investment tactic by paranoid conspiracy theorists that believe that the stock market will crash, rendering all investments worthless except resources like gold, silver and other precious metals. Although it is plausible that individuals like this do exist, the normal investor who buys precious metals does so merely because natural resource investments in metals like gold, silver, palladium and platinum are logical financial decisions with longevity and proven yield.
The reasons behind investing in precious metals are numerous and quite sound. One of the most compelling reasons is the tangible nature of these commodities. While securities are representations of capital contributed to a company and rely on the company’s performance, gold and silver are physical substances. Capital invested in a fund to support a project or event relies on the success of that project or event in order to yield a return to its investors. Precious metals will continue to be tangible objects no matter what else happens around them. These sorts of precious metals have many uses. They serve as conductive wiring, are used in medical procedures and equipment, in engineering, and in manufacturing electronics. Many are used in currencies around the world, for decoration and, most notably, in the production of both women’s and men’s jewelry.
Financial planners and financial analysts, along with anyone else who is learned in finance and understand how to build a portfolio, are knowledgeable in the place natural resource investments can play in portfolio structure. Financial planners use a strategy called asset allocation to break down fixed income versus equity investment, and to further separate equity investments by asset class. Natural resources are considered an equity asset class and generally comprise a fairly small part of a portfolio. However, this does not mean that people aren’t free to own entirely precious metal investments or the actual tangible resources in lieu of equity. Precious metals are unique as commodities so they are often seen as suitable investment options.
Gold, silver, platinum and palladium, like several other forms of commodities, are frequently impacted by supply and demand. Prices can go up and down based on current supplies versus market demand, which is not something true of most other forms of investment. This is one reason that some investors favor precious metals. Additionally, a commodity like gold or silver will never have a value that drops to zero. While costs may rise or drop over several years or decades, there will always be a demand for precious metals, regardless of the state of the market or the economy.
There are numerous ways an investor could go about getting started in gold, silver, platinum or palladium. Many people choose to actually purchase physical assets, like bars of gold, silver coins, or platinum settings. While this is not always the best strategy, as these tangible investments do not grow at the same rate as traded securities, these sorts of investment hold their value better through an economic crash and, of course, will never go to zero. Precious Metals Merchants, is a service that sells or stores platinum, gold, silver and palladium bullion and coins for interested investors. Even for investors who prefer a largely equity portfolio, owning tangible resources can be a good backup strategy should anything catastrophic happen. Inflation doesn’t affect physical gold the same way it would equity investments.
A more popular option for many investors is exchange-traded funds, pooled investments that trade on national or international markets. These funds often perform well, depending on market conditions. Some examples are streetTRACKS Gold Shares ETF, which trades as GLD, E-TRACS CMCI Long Platinum ETN, which trades as PTM, and iShares Silver Trust Fund, which trades as SLV. Investors have lots of resources to track things like risk, performance, history and future projections. Some natural resources funds hold investments in precious metals and other forms of natural resources, like oil and coal. These blended funds can also be good option, especially for investors with interests in a diversified portfolio.
Mutual funds, future, and private equity investments are also forms of relevant investments. For investors interested in private equity, there are many private companies involved in gold who offer investment options. Additionally, some venture capitalists and angel investors specialize in precious metals start-ups. Metals-backed derivatives are also a good alternative to those investors who are qualified to make derivatives trades. Options for funds or tangible assets are also preferred by some individuals, especially when prices are low.
Out of all the precious metals, gold is the most popular. Gold is best known as a popular setting for jewelry and is associated with wealth and royalty. Gold alloy is often used more than pure gold, as gold is very soft and malleable. Gold has hundreds of uses in engineering, electronics production and wiring, which is part of the reason it is in high demand and still holds a high value today. For non-utilitarian reasons, gold is largely considered valuable due to its historical uses and its beauty. This is also true of silver, although its uses were significantly more practical than gold. Silver plates, flatware and drinking vessels have been very common for wealthy individuals for hundreds of years. Silver, like gold, has many practical uses as well. Silver is used for heating and cooling, electronics, and in building solar panels. While its worth is generally not as high as gold, silver prices have been rising steadily over the past several years.
Platinum and palladium are both metals with less of a history but a value just as high as gold and silver. Platinum and palladium were both discovered within the last several hundred years and their uses are rapidly growing as technology advances. These uses are driving the value of both metals up considerably, making now the best time to buy. Platinum is frequently used in computer equipment, chemical production, certain kinds of cancer treatments, and several varieties of medical tool. Palladium has many of the same uses, like computer equipment and medical tools, but is also effective at water purification and used in fuel cells. Palladium is also commonly used in catalytic converters. Although these metals may have fewer equity investment options than gold or silver, they are both becoming increasingly popular as natural resources investments on the whole.
Not all investors are interested in precious metals but the idea of buying gold, silver, platinum or palladium is becoming more widespread and accepted. Many investors are encouraged by their financial planners or investment advisors to buy into precious metals or blended natural resources funds, while other prefer tangible assets. Regardless of the method of purchase, there is no denying that precious metals can be valuable assets for investors. These investments can hold their value through inflation and economic downturns and are always in demand. If you have never considered precious metals as investment options, now may be the best time to start.
Sources:
http://etf.stock-encyclopedia.com
http://moneymorning.com/2013/02/26/investing-in-silver-price-dip-is-a-good-time-to-buy/
bullion.nwtmint.com/platinum_uses.php
http://www.forbes.com/2010/06/22/investing-precious-metals-personal-finance-gold.html
http://www.dummies.com/how-to/content/precious-metals-investing-for-dummies-cheat-sheet.html