Precious metals are often sought by investors as a safe haven. Investments like gold and silver have the effect of rising in price when the stock market is volatile. That makes them an anchor in a storm for investors. When other investments might wobble and falter, precious metals tend to stay strong. There’s a concept in investing called ‘the permanent portfolio’. Developed many decades ago now it still works perfectly. According to this permanent portfolio concept, every investor should own 25% of their money in precious metals. The other 75% made up of stocks, treasury bonds, and cash in the bank.
So, why do precious metals have such a strong place in the investor’s portfolio? After all, the price doesn’t fluctuate too wildly. Well, it’s precisely because of its stability that it proves a strong investment. Owning gold alone won’t make you a rich man. However, it will help your overall portfolio grow and develop. Let’s take a quick look at the markets in the wake of the September 11th attacks. The stock market itself tumbled wildly downwards. Gold, however, maintained a relatively stable position. In fact, it grew rapidly for the next ten years, riding out the 2008 recession too. Precious metals are the rock in your portfolio.
But, which precious metal is the best place to start? We all lean instinctively towards gold, but what are the virtues of the other metals? Throughout this post, we’ll look at some of the options out there. From gold to silver to platinum to copper. We’ll identify the pros and cons, and explain a little about how to purchase them. Please feel free to ask any questions or leave your thoughts at the end of the post.
We’ll start with gold, because it’s traditionally the investor’s choice. It remains a particularly strong choice in America. Why? Because in the past, gold helped dictate the price of the dollar. The price of the dollar was measured against gold, using the ‘gold standard’. Now, monetary agencies use a fiat system to determine the value of a dollar. However, gold remains popular. The beauty of gold is that it thrives during periods of inflation. During inflation, the price of a dollar drops. The price of good rises, so the dollar in your pocket is essentially worth less. When this happens, the price of gold rises like a counter-balance.
The common story that helps explain this is as follows. In 1912, a man could walk into a tailors, and choose to pay for his suit with a $20 bill or a gold coin of equivalent value. Fast forward to today, and the man could still buy the suit with value of a gold coin. But, he could barely afford a pair of socks with the $20 note! If you hold gold for long enough, it’s a highly appreciating asset, when compared to the dollar.
You can hold gold in a variety of forms. Gold coins is a common option, in the form of gold ‘eagles’. A 1 ounce coin will cost just upwards of $1,200 at current levels. Of course, you can also buy gold bars. 100 grams costs somewhere around $4,000. There is a finite amount of gold, so it will always hold a good portion of its value.
Silver is often used in the same way as gold, as a hedge against inflation and market volatility. However, silver also plays a very different role. Just by looking at the charts, we can see that silver is on a huge upwards curve at the moment. It’s been following this path since 2003, and analysts are very optimistic about the price continuation. As they say on wall street, investors are bullish for silver. So, why would you buy silver and not gold?
Quite simply, silver is cheaper for the size. By purchasing silver, you get more coins and more bars for your money. For smaller investors, they simply prefer the idea of seeing the value they own. Silver is often referred to as the ‘poor man’s gold’ for this reason! However, this also makes silver is also more volatile. It’s a much newer investment than gold, which has been used for centuries. It’s still being traded and switched more regularly than gold (where investors buy and hold for decades). You can make a more money by trading short-term movements with silver. But, you can also lose it too.
Often known as the ‘industrial’ precious metal, platinum is another useful alternative to gold. The metal is actually rarer than gold. In fact, the entire world’s capacity of platinum could fit in a room just 25 x 25 feet. Gold is twenty times more abundant. Traditionally, platinum would trade at twice the price of gold. But, it has recently fallen below the yellow metal. So, why would you invest in it? Well, it’s all about speculation. Platinum is a more industrial metal than its counterparts. It’s used heavily in the automobile industry. If you believe the car industry is likely to thrive in the next ten years, then you’d bet on platinum. At today’s prices, it could be a bargain if car manufacturers start thriving.
Palladium holds a similar industrial application to platinum. It’s used in catalytic converters for cars. However, it has recently picked up in demand due to use in electronics, dental implants, and renewable energy. Palladium is another speculative purchase. If you believe these industries will thrive in the next decade, palladium is a strong investment.
Copper is currently on a rising streak, as investors anticipate a further decline in the dollar. Copper is already used in tons of coins, and you can buy a lot of it for your money. It’s also an in-demand industry metal, so it’s unlikely to put off investors any time soon. It’s a good hedge against inflation, and an investment in the future of industry.
A well-balanced portfolio should include a variety of these precious metals. To hedge against rising inflation and the declining dollar, precious metals are a savvy investment.