During periods of economic stress, alarms and whistles do not necessarily reverberate through the precious metals community. Advisors and savvy investors know how fortunate they are to have put their trust in an essentially stable investment. There are those that would say it’s during these volatile periods that we should invest even more.
Precious metals like gold and silver are universal symbols of wealth. Civilizations have demonstrated the alleged social advantages of having wealth by taking precious metals and creating jewelry solely to display their good fortune. History shows the earliest forms of currency were likely crafted from precious metals. And nothing has changed. Our fascination with precious metals still goes strong. This isn’t limited solely to silver and gold. Precious metals also include platinum, palladium and copper, to name primary metals.
Investing in precious metals has become a hot and growing commodity. No surprise. It’s certainly proven to be one of the safest means for ensuring financial stability. Paper money and stocks fluctuate. Financial institutions are victims of a volatile economic market. Precious metals meanwhile have maintained a steady value throughout history. Precious metals are a solid hedge against even the strongest paper money. Like stocks and most other financial bodies, money is subject to value change. Precious metals are considered great safety nets! It’s a sound investment, ensuring a financial future for you and your loved ones.
Investing in precious metals is also believed to be an excellent way to diversify. Allocating even a small percentage of funds into precious metals makes sound business sense in comparison to putting all monies into cash based opportunities. Precious metals protect your investment and wealth in economic periods of peril, giving you monetary certainty even in the worst of financial times.
Why Precious Metals
No one can truly predict the results of the government’s aggressive attempts to curtail a severe recession. The Federal Reserve continues to inflate money supplies. Yet eventually all these low interest rates will increase if only to hold off retail inflation.
Commodity prices getting pushed up are one repercussion of these actions. Precious metals, on the other hand, spreads portfolio risk during the most disparate economic periods and even during war, when inflation can threaten the value of currency. Buying precious metals is a reliable and sturdy diversification and a good hedge against equities.
Like any other type of financial venture, one should perform their due diligence accordingly. Understanding not just precious metals and the market, but how it relates to your trading style and objectives, is going to be imperative. Well regarded investment strategies can help manage risk. It might be a good idea to get the ear of a trusted advisor. They will have the experience and expertise to offer advice on what paths your investment campaign should take.
There are questions you should have the answers to. Questions about trading objectives and personal preferences that needs to be addressed before a penny is invested in precious metals.
- How much capital are you willing to risk?
- What is your outlook on the asset (neutral, bearish, bullish)?
- If buying at lower prices, what will be your move if prices drop further?
- To reduce risk, will you perform any hedging and what kind?
- What do you plan on focusing on? Or will you diversify with interests in stocks, futures, options, precious metals, etc.?
- How long will you hold your position?
- What is the level of loss you’re willing to accept before getting out?
- What will be your move if prices go down?
- What circumstances would cause you to cash out on profitable trades?
There is far more to precious metals than gold bars. While gold gets the most attention, there is demand for other metals. Three other major precious metal investments are platinum, silver and palladium. Each has seen impressive price increases over the years.
Many associate precious metals with coins, jewelry and solid bars. Yet metals that are used in industry put certain commodities high on the list. This is one of the reasons why copper, though not necessarily as in demand as other metals, can be a sound investment as well.
The sudden dominance of countries like India and China as power players in world commerce has significantly contributed to the higher demand for metals used for industrial purposes. Gold is utilized in many technology components. Platinum can be found in a number of pieces of medical equipment, as well as automotive parts and computers. Palladium is used in catalytic converters as it’s resistant to high temperatures and can withstand oxidation. It’s a rare metal found in electrical products like mobile phones and computers.
So stop thinking of precious metals in terms of bars and ingots tucked safely away in a vault, or a rare coin collection secured in a safety deposit box. Factor in the future of day to day commerce and where these metals may play a significant part, thus increasing their value.
Adjusted for inflation, gold reached a record peak in 1980 when it hit $873, which after adjustment equals $2,287 today. The most recent high was $1,252 per ounce. That’s an incredible increase of about 300 percent over the past five years. Platinum made its high of $2,252 in 2008. Currently it hovers in the $1,500 vicinity. Silver tends to stay in the $20 or lower range. Palladium currently hovers in the mid $20 an ounce range.
There are several ways to invest in precious metals.
- Certificates. Certificates offer all the benefits of physical precious metal ownership without the need for storage and transportation. Do remember that certificates are only paper. It’s unlikely anyone will exchange them for anything of value.
- Options and Futures. These markets offer leverage and liquidity for investors looking to bet big on precious metals. There are truly great rewards (and losses) with derivatives.
- Commodity ETFs. Exchange traded funds are traded for the major precious metals, though for platinum you will have to trade on the London Stock Exchange. This is a hassle free and liquid method for purchasing and selling precious metals.
- Mutual Funds and Common Stocks. Unless you have a firm comprehension of how mining stocks are valued, its best to stick with funds that have managers with excellent performance records. These shares of precious metals miners are leveraged in comparison to price movements in precious metals.
- Bullion. Bars and coins will need to be stored, insured, etc. This type of facility is perfect for the investor that wants to prepare for the worst. On the other hand, for investors working with time periods, bullion is illiquid and not worth the burdensome process of storage.
The precious metals market is an effective way to accumulate wealth, especially in the long term. Precious metals were considered great investments 5,000 years ago and have had entire armies battling over them. They will likely be seen the same way for a long time.
Precious metals are an effective way to diversify a portfolio. The best method for achieving success in precious metals is to know your objectives clearly and ascertaining your risk profile. But if not approached with consideration, it could easily lead to ruin the same way any financial venture can.
Consult with someone that already has a hand in this market, or partner with a good financial advisor. Don’t simply learn about the precious metals market, but each individual market that affects the major precious metals and the various types such as coins and bullion. These commodities have the potential to offer a distinctive inflationary safeguard. They come with no credit risk. They have intrinsic value. They cannot be inflated or priced out of the market. They promise protection against economic, political and military upheavals.
They also provide a low correlation to other investments such as bonds and stocks. Even if a portfolio holds a small percentage of precious metals, an investor is reducing both risk and volatility. Before investing in precious metals, do the research. Expect to deal with volatility in pricing and to keep a long term perspective.