Precious metals and your portfolio
Investors interested in gold, silver, and platinum can add exposure to their portfolios in a variety of ways.
Precious metals deserve a spot in any balanced portfolio. As a hedge against the possibility of rampant inflation or currency debasement, it's hard to find a better asset class.
Consider weakening currencies, international tensions and natural disasters in a world where light-speed communications can turn any geopolitical murmur into a major shock to the financial system. Gold, Silver and Platinum provide protection against these major financial shocks by creating a strategically balanced investment portfolio.
If you're looking to add precious metals to your portfolio, or build a portfolio based strictly on precious metals, you have many options to choose from. Let's take a closer look at precious metals in general, and then how to add precious metal exposure to a portfolio.
Understanding precious metals
Precious metals are defined by their rarity and their tendency to be non-reactive, which makes them expensive and limits their industrial use. There are more than a dozen different precious metals in total, including mercury, beryllium, and indium. However, for investing purposes, there are only three worth considering: gold, silver, and platinum.
Gold is the ultimate precious metal. Its demand is well-established, yet it has virtually no industrial uses. Silver is less rare, and is often used in electronics and automobiles. Platinum is more rare than gold, but has a fair amount of industrial use, and its status as an investment vehicle is less established.
In general, the price of all three metals will move in tandem, but there are some occasional swings. Silver and platinum are more susceptible to shifts in the global economy, while fears of forthcoming inflation can spark moves in gold.
Types of Precious Metals
When people talk of precious metals as investments, they are generally referring to gold, silver, platinum or palladium – each of which has its own unique benefits and can be purchased for placement in your portfolio. Here’s a quick background on each metal and its common uses.
Gold has been a highly sought-after symbol of wealth since the beginning of recorded history, often used in jewelry, art, coinage and many other applications. Because it is malleable, resistant to corrosion and conductive of electricity, gold also has practical uses in numerous industries.
Like gold, silver has been used for generations in jewelry, tableware, coinage and numerous other items. Its malleability, heat and electrical conductivity, and unique luster make it practical for a wide variety of industrial, electrical and manufacturing applications.
Platinum, recognized its greyish white luster, is a rare precious metal used in many similar applications as gold and silver. Platinum is known for its great catalytic properties and is thus used heavily for industrial processes, as well as the manufacturing of jewelry and numerous other items.
Why Own Precious Metals?
When you invest in Precious Metals, you invest in an asset class that is as old as civilization itself. Precious metals have been a proven store of wealth for thousands of years.
In times of instability, they have been viewed by many as a safe haven, used to preserve wealth and add security to an otherwise uncertain financial future. And today, even in our high-tech-driven 21st century, the asset class millions rely on in times of trouble is gold and silver. Precious metals have always been, and likely will continue to be, a valued form of "wealth insurance" in good times and bad.
Precious metals can offer outstanding price appreciation and profit potential
Between early April of 2001 and early September of 2011, the price of gold increased from a low of approximately $250 per ounce to a high of nearly $1,900 per ounce - an increase of over 600% in about 10-1/2 years.
During a similar time period, from late November of 2001 to late April of 2011, the price of silver increased from a low of approximately $4.00 per ounce to a high of over $48.00 per ounce - an increase of over 1,100% in just 9-1/2 years.
These are just two examples of the long-term profit potential possible in the precious metals markets.
Also notable, is that recently, there have been periods of significant price volatility in the precious metals markets where prices have moved suddenly and dramatically, both higher and lower. In such volatile times, precious metals can produce impressive short-term investment returns as well. And many financial experts have predicted and continue to forecast volatile gold, silver and platinum prices in the months and years ahead.
Today, a growing number of investment analysts, financial advisors and commentators are speaking out about the many wealth protection and profit potential benefits of owning precious metals.
Precious metals will always have inherent value because they are tangible and finite resources, uncontrolled by any single government or financial institution. This gives precious metals a unique advantage and can play important roles in a modern portfolio.
Because the global supply is relatively finite, Gold’s relative purchasing power has historically remained stable during inflationary times. An ounce of Gold and Silver is the same ounce of Gold and Silver with the same recognized value anywhere in the world. This makes the precious metal easy to trade.
The demand for gold is everywhere – nowhere more so than from governments themselves. National central banks bought over 533 tons of gold in 2012 – the most in almost half a century. Even countries such as Russia, Turkey and Ukraine are taking on more gold. The demand for precious metals will continue to rise, not only from nations and investors, but also from the numerous industries that use the metals in their manufacturing every day.
As the demand for precious metals is increasing, supply is decreasing, thus naturally pushing their value higher over time. Around the world, many of the large deposits and high-grade gold have been discovered – and yet these metals continue to be sought after for use in medicine, machinery and a myriad of other applications.
Precious metals stay in families for generations. Even over decades of time, each recipient realizes the value of their inheritance. Precious Metals can be a means of passing tangible wealth onto future generations.
Precious Metals prices generally move independent of stocks and bonds. In a downturn, they could provide the one bright spot your portfolio needs. Their low correlation to other assets makes Precious Metals ideal for balancing any portfolio.
Benefits of investing in precious metals
Security. Because precious metals are not subject to the same forces as stocks and other paper assets, diversifying your portfolio with gold and silver can add an additional level of security for your wealth.
Diversification. We can't stress this enough: diversification is crucial to every person's portfolio, especially when it comes to retirement savings. Diversifying your assets is a fundamental investment strategy. Most investors primarily hold paper-backed assets – stocks, bonds and mutual funds – which in today’s globalized world can fluctuate with each crisis. This is why many people diversify their portfolios with precious metals – to remove the risk of putting all their eggs in one “paper” basket.
Growth Potential. Aside from the security, many people purchase gold and silver specifically for their growth potential, which isn't affected by the same forces as those in the stock market. As finite resources, gold and silver have inherent value and an ever-increasing global demand.
Liquidity. Some forms of precious metals, such as gold bullion, are valued almost entirely by their metal content and weight, making them tangible, extremely liquid assets that are uninfluenced by the myriad of other factors that threaten other investment types. In fact, precious metals are among the most liquid assets possible to hold as an investment.
Protection against the volatile stock market. When the stock market tumbles, portfolios can suffer greatly. If it happens to you right before retirement, you could be forced to continue working for many years to come. Diversifying your portfolio with precious metals helps protect your retirement money by shielding it from the volatility associated with stocks and other paper assets.
Hedge against inflation. Many people who buy gold and silver do so as a hedge against inflation and the declining U.S. dollar. As the dollar loses value, Americans essentially lose wealth and purchasing power. If the value continues to shrink, paper-heavy portfolios could be worth a lot less in retirement. On the other hand, the value of precious metals, like gold, tends to increase as the dollar drops. By placing precious metals in your portfolio, you can thus preserve your buying power and safeguard your money from the effects of inflation.
EXPLORE THE BENEFITS OF GOLD AND SILVER
From private investors to hedge funds to central banks and governments, the demand for precious metals continues to rise. Central banks alone purchased almost 600 tons of gold in 2015. Numerous industries consume precious metals in various applications including electronic and medical practices.
Mining exploration has continued to prove more difficult for precious metals in recent years. At the end of 2013 if all available gold that existed above ground were placed next to each other the resulting block of pure gold would measure a mere 21 meters in any direction. According to a recent article by Goldman Sachs, the world has about 20 years of minable gold reserves. This could prove very positive for the price of gold.
GOLD TO SILVER RATIO
For years the ratio of gold to silver was approximately 16 to 1 meaning it took 16 ounces of silver to purchase 1 ounce of gold. Today that number is closer to 70 to 1. Some experts predict that the gold to silver ratio will return to its previous average resulting in a great upside potential for silver.
Precious metals offer a unique benefit not found in many other investment vehicles. When acquiring precious metals, your information is not stored nor shared with any private or public entity. What you do with your gold and where you store your gold is your business.
Precious metals offer the owner instant liquidity: you can convert your metals into the currency of your choice. Today, gold can be converted to cash instantly in any country and is truly the international currency standard.
Many families were financially devastated by the crash of 2008 and most have not fully recovered. Diversification can help: if these families had gold as a portion of their portfolios, they would have offset many of their losses. Not putting all of your eggs in any one basket is a strategy recommended by many investment professionals.
HEDGE AGAINST INFLATION
During inflationary times, precious metals act as protection of your purchasing power. In 1933 one ounce of gold had a value of $35. For $35 you could have purchased a men’s 3 piece suit, a dress shirt and a tie. Today with the price of gold well over $1,000 you could still purchase a men’s 3 piece suit, a dress shirt and a tie, you’d still have plenty left over for a pair of shoes. That is protection of purchasing power.
HEDGE AGAINST THE DOLLAR
The value of the dollar today is worth only 5% of what it was in the early 20th century due to the continued debasement of currency by the Federal Reserve. The US “officially” owes $18 trillion in debt. If you include unfunded liabilities that amount jumps to $100 trillion. These are promises the US has made and the value of the US Dollar is based on the belief that the US will honor these promises.
Precious metals are historically sound
Precious metals such as gold and silver have been coveted stores of wealth throughout human history.
Gold and silver has always been seen as assets that transcends borders, languages and the ever-changing tides of fiat currencies.
Gold and silver are finite resources that are not controlled by a single government or financial institution. Experts believe that they will always hold inherent value.