Precious metals are rare metals that have a high economic value. They are valuable because they are scarce, are useful for industrial processes, or have investment properties that make them a good store of value. The most notable precious metals are gold, silver, platinum and palladium. Here's a guide to investing in precious metals.
We will explain what they are; the advantages, disadvantages and risks of investing in them; and some investments in precious metals to consider. Another benefit of investing in precious metals is that they offer protection against inflation. You can't create more metals than you already have, so you can't inflate them. Metals are also free of credit risk.
Owning metals helps diversify your portfolio, which is often recommended for greater investment security. Throughout history, civilizations have stored their value in precious metals. This almost universal recognition of value makes gold, silver and other precious metals a great long-term investment. Investing in precious metals provides protection against factors ranging from inflation to civil unrest.
However, investing in gold and other precious metals, and particularly in physical precious metals, involves risks, including the risk of loss. Investors can also buy gold stocks (shares of mining, transmission or royalty companies), gold-focused exchange-traded funds (ETFs), or gold-focused mutual funds. You can pay a portion of the cost of investing in the precious metal in cash, but then pay the rest of the investment with margin. Include precious metals, one of the most useful alternative asset classes for investors seeking to reduce their exposure to stock market volatility.
In addition, there is a greater correlation between the stock market and these types of investments, which could also cause the price of precious metals shares to perform lower than the price of the underlying metals during a generalized sales wave in the market. It's common to find metals such as gold and silver in jewelry, but precious metals also have a wide variety of industrial uses. Given the unprecedented period of global economic expansion and the existing vulnerabilities in the international financial system, prudent investors are focusing their attention on relatively moderate investments in gold and silver, which offer protection against stock market volatility. For example, a mining company could suffer cost overruns when developing a new mine, mismanagement, or financial problems that could cause its stock price to perform significantly lower than the prices of precious metals.
Some investors also choose to buy copper, magnesium, zirconium, iron and other metals that have a large number of industrial uses. Advantages include the ability of physical gold to track the price of the precious metal and the potential for gold stocks and gold ETFs to perform better. Too large an asset allocation (15% or more) dedicated to precious metals could result in the loss of the higher returns offered by other asset classes. Precious metals are not only a solid asset, but also an ideal safe investment that has historically withstood economic uncertainty.
Investors should carefully consider whether they want to invest in precious metals and, if so, fully understand the risks associated with the investment they have chosen.