Precious metals, like silver, gold, palladium, and platinum, have intrinsic value, and that makes them great investment vehicles. Silver and gold both have a long history of use as a currency, and could still be used as currency in a pinch — plenty of investors buy bullion and coins with an eye towards possibly trading them for food or other necessities in troubled times. But you probably won’t be trading your gold coins and silver bullion bars for bags of black-market rice anytime soon. No, you want to invest in precious metals to stabilize your portfolio. Precious metals can act as a hedge against inflation — devaluation affects currency, but it doesn’t affect precious metals. Silver, gold, and other precious metals can also serve as protection against market volatility — when the stock market dips, the spot prices of gold, silver, platinum, and palladium climb. Even if you don’t want to buy coins or bullion, you still have options to add precious metals to your investment portfolio.
Protect Your Money’s Value
One of the primary reasons why many investors venture into the world of precious metals is to hedge their investment portfolios against inflation. Inflation occurs when the fiat currency is devalued. This makes goods and services cost more, but it can also shrink your investment returns. Inflation at three percent can really eat into your returns on investment in stocks, bonds, or mutual funds, especially since most such investments only return about six to eight percent.
But gold, silver, platinum, and palladium are inherently valuable. Gold is valuable in jewelry, as a type of currency, and as an investment vehicle. Silver has a wide range of industrial applications, but it’s also used in jewelry. Both gold and silver have a long history of being used as currency. Platinum and palladium are also used in jewelry, but both metals are primarily used in industry. Their value is tied to their usefulness and properties, and not to the value of a fiat currency, so when the fiat currency is devalued, the value of precious metals remains the same — the price just goes up to reflect the fact that the currency isn’t as strong as it was before.
Mitigate Investment Risks
When the stock market goes down, the precious metals market goes up. It’s not uncommon for investors to pull their money out of an ailing stock market and put it into precious metals instead. So adding some precious metals commodities to your portfolio can protect your assets from the effects of market volatility. You’ll lose less money if you have some of your money in precious metals. But it goes the other way too — when the stock market is doing well, precious metal prices can fall. However, often there are other factors affecting precious metal prices. For example, silver is used to make the photographic film — but when people mostly stopped using film cameras, the price of silver dropped, because industrial demand for it dropped. Now, thanks to the use of silver in the electronics industry, prices are high again. Precious metal prices can fluctuate based on factors including the amount of scrap metal being reclaimed around the world, investor pile-ons, and industrial demand.
How to Buy Precious Metals
It’s fairly easy to buy bullion and coins these days — you can just go online to buy, for example, a 10 oz silver bar from a reputable dealer, and then you’ll have the satisfaction of physically possessing a valuable piece of precious metal. You can take delivery of your precious metals and keep them in a home safe or vault, or maybe a safe deposit box. You can also keep your precious metals in a depository, where they’ll be kept safe under lock and key.
However, the cost of storing and insuring bullion and coins can eat into your returns. It can also be difficult to liquidate some precious metals — or, at least, it can be hard to sell them as fast as you might like. If the thought of owning a stack of bullion makes you feel like a pirate, you can get exposure to precious metals by buying exchange-traded funds (ETFs), exchange-traded commodities (ETCs), or exchange-traded notes (ETNs) tied to the value of the metal you want exposure to. You can also buy precious metal mutual funds, or even directly buy stock in mining and production companies.
Precious metals could be just the thing to round out your portfolio and protect it from both market volatility and inflation. Don’t wait any longer to diversify your portfolio with precious metals exposure — you’ll thank yourself in years to come.
