Investing In Precious Metals

The precious metals markets can provide investors with an alternative asset class in which to put money to work. The precious metals including gold, silver, platinum, and palladium trade on open markets in their physical form. They also “Back” several paper metal investments, for example the GLD exchange traded fund is backed by physical gold holdings.

Why Invest In Precious Metals?

The case for investing in precious metals is quite extensive. It is important to remember that precious metals, especially silver and gold, have been considered a store of value for thousands of years. Long before many modern day currencies, gold and silver bars or coins were used to transact every day business. All over the world, the metals are recognized for their inherent value, and prices are the same regardless of where you may be. When business is conducted using gold or silver, there is no credit party risk. When business is transacted today, it is done with paper or fiat currency, which is back up by governments. Should a government fail, or should the country that has issued the paper money lose its sovereign status, that currency could become worth less than the paper it is printed on. This risk does not exist with metals.
Precious metals can help protect wealth and purchasing power. The fact is that paper currency loses some of its purchasing power each year. A dollar today buys considerably less than it did 30 years ago. There are several reasons for this. One particularly large reason that is quite evident today is the actions taken by central banks to manipulate their currencies or to stimulate their economies. The last several years have seen large amounts of quantitative easing, or money printing, by central banks around the globe. Just like any other commodity, when the supply goes up and demand is constant the price goes down. Simply look at the value of the U.S. Dollar today versus several years ago. Ownership of gold and silver can help insulate one from weaker currencies and erosion of buying power.
Precious metals cannot only help hedge one’s inflation risk, but they can also hedge against deflation. During tough economic times, prices start to drop in an attempt to lure in buyers. Unfortunately this type of scenario tends to spiral out of control as people who have less disposable income spend less and wait for continuing drops in prices of general goods and services. A vicious cycle ensues that is hard to break. The precious metals are often bought during tough economic times. Gold and silver are often perceived as safe havens by investors and as such demand tends to remain strong. Speaking of safe havens, gold and silver may also outperform other investments during times of geopolitical tensions or even war.

How To Invest In Precious Metals

There are several ways to invest in metals. One can simply buy and hold the actual physical metals, or have them held in a depository. IRA accounts can even hold some types of metals in them. One can also invest in various gold or silver backed paper instruments. The first step is to decide what your investment objectives are and how much you would like to invest given your financial situation. The second step is determining which product best suits your objectives. For many people, this will likely entail buying small gold and silver bars and coins and storing them at home or in safe deposit boxes. After all, one reason people like metals is for the “What if?” scenario and in order to do any good in a crises one’s metals need to be easily accessible. The third step is to find a reputable dealer to do business with. This is quite simple these days and one can check online reviews from other customers to see if a dealer is doing business the right way and making their customers happy.

Precious Metals Outlook

The investment outlook for gold, silver, platinum, and palladium is bright. Silver investing 2013 in particular is a commonly written about investment theme. We live in a very uncertain world these days. Over just the last several years, investors have had to deal with the U.S. banking and sub-prime mortgage crises, the European sovereign debt crises, ongoing turmoil in the Middle East, and a sluggish economy to name just a few things. Central banks have flooded the world with additional liquidity that will possibly cause real inflationary pressures at some point.

There is an ongoing currency war in which countries purposely weaken their currencies to try to make their exports more competitive. The list goes on and on. The gold and silver markets are down quite a bit this year, as people believe that global economies are recovering. Whether they are or not still remains to be seen. One thing is certain though. That is the fundamental reasons for precious metals ownership have not changed, nor will they change anytime soon. When considering these types of investments, one must be able to “See the forest through the trees.” Gold is a great example of this. Gold has been in a decade long bull market. Markets typically do not go straight up or straight down. They tend to stair step higher or lower.

For the patient, long-term investor, the recent pullback in gold and silver prices could be nothing more than an excellent opportunity to buy or add to physical holdings at lower price levels. This dollar cost averaging method of investing can bare fruit if the market does indeed resume its uptrend. With so many bullish fundamentals in place, limited world supply, and consistent demand, it is hard to imagine the precious metals not doing exactly that. Precious metals are the type of investment that one should have some type of allocation in regardless of the price action. They can provide a sense of security, and should the need ever arise may just allow one to weather an economic or geopolitical storm.