Understanding The Value Of Precious Metals
With the volatility we see in current stock market trends, as well as other economic bellwethers many smart money investors are diversifying their portfolio to include more gold and other precious metals. They’re doing so because gold, silver, and platinum have a long-established history for resisting swift changes in market value. Their staying power exists both as an investment option, as well as being something physical that you can hold on to for liquidity in distressed times.
If you are relatively new to precious metals or you simply want to know more about how their value can help diversify your portfolio and help insulate you against economic distress.
Gold is the most beloved and stable of all the precious metals. It is remarkably durable in that it will not tarnish or rust. It remains malleable while also being a superior conductor of electricity and heat. These properties mean that gold has value both as jewelry and ornamentation as well as being actively used in a wide range of consumer electronics.
The overarching value of gold is determined by international stock market. Many people also hold onto physical gold in their household or another secure location to help ensure they have some form of liquid value should an economic crisis hit hard. Since the demand for gold is so high worldwide any physical gold that is made available for sale is quickly purchased at its current high value and absorbed into the market.
Gold’s value is strongly influenced by several factors.
Global Economic Trends or severe political distress gold is often seen as the safest bet for preserving wealth in a physical or invested capacity. In fact, gold has a strong tendency to even increase in value in these conditions.
Rising Inflation can have a negative influence on the rate of return on equity, bond or real estate markets, individuals and investors tend to turn to gold. In conditions like this gold’s value tends to resist the wild changes you often see in other commodities.
Silver is sort of like gold’s little sister. As a precious metal it has both physical and investment value. However, it differs from gold in that the value of silver can be a little more volatile than gold, and its price per ounce is typically lower. This ultimately means that the silver market is more volatile than gold.
In the past silver’s practical value was related to the photography industry and developing photos. However, the digital age and the widespread presence of digital cameras has reduced some of silver’s commercial values.
Fortunately, silver still retains a value in emerging market economies in the East, where it is used in a variety of electrical appliances, medical products, and uses in other industrial applications. Silver is also used in certain types of batteries, superconductor components, and solid-state microcircuits
All these factors mean that silver will retain its value, yet it will likely never exceed that of gold. In a severe time of economic or political distress where commercial production slows, it could become more volatile.
Just like other precious metals platinum is traded throughout global markets. In certain stable conditions it might even have a higher price per ounce than gold. This is simply related to the fact that it is not as available as gold and it is typically more labor intensive to mine as well as process. In economically unstable times its value can be affected by several factors.
While platinum does have some appreciation as jewelry it is more often used as an industrial metal. It is most often used in the automotive industry in catalytic converters which help to reduce the harmfulness of emissions of internal combustion engines. It also has a presence in the petroleum industry and chemical refining as well as computers and other electronic devices.
It’s strong link to the automotive industry means that it’s price per ounce and international demand can be influenced by new auto sales, replacement parts, and general production statistics. Also clean air legislation can also increase platinum’s demand and price as state and national governments start to require vehicles to have up to date converters.
South Africa and Russia are the two places that mine and produce the majority of the new platinum being introduced on the international market. These limited options mean that instabilities in these regions can affect global supply of platinum.
When you equate all of these factors together, it means that platinum has the potential to be more volatile than gold and silver.
Exploring Your Investment Options
There are different ways to include precious metals in your portfolio or to keep some on hand.
Exchange traded funds (ETF)
are available for gold, silver, and platinum. They tend to be a convenient and liquid option for purchasing as well as selling precious metals.
Stocks and Mutual Funds are available for the precious metals mining industry. However, these options may not be a good choice for the casual investor as there are many details, beyond the simple price per ounce of precious metals that can influence their margins. So, it’s best to run this type of investment strategy through a fund manager with an established track record of success in precious metal mining stocks and mutual funds.
Futures and Options
can provide investors with liquidity as well as leverage when placing large bets on metals. Just like stocks and mutual funds, futures and options may not be a good choice for a casual investor who wants to dip their toe in the precious metals market.
Bullion Coins, Bars, and Other Physical Forms
are popular with individuals and investors who want to have a secure and easily liquid amount of precious metal on hand for times of severe economic or political distress. The challenge in these situations is to make sure that your physical forms are properly protected in a strong safety or another secure location.
Precious Metal Certificates
provide investors the essential benefits of physical ownership without the immediate concern of safe storage or transportation. Unfortunately, in a severe disaster where civilized infrastructure collapses, a precious metal certificate may not be honored, leaving you with little more than a flimsy piece of paper.
Choosing The Precious Metal That Is Right For You
There are going to be several factors that influence what and where you want to invest in precious metals. They provide superior inflationary insulation while also carrying intrinsic value and their physical presence can give you added security in uncertain times.
When it comes to determining your investment strategy they further offer low risk compared to other stocks and bonds. Adding even a minimal amount of precious metals to your existing portfolio will help reduce your risk in volatile market conditions.
Before determining your level of investment, you should take some time to assess your current portfolio to gain a clear picture of your goals. While precious metals can certainly yield a profit, they are also not immune to loss.