fbpx

5 Reasons to Invest in Precious Metals

by May 10, 2021Investment Strategy, Market Insights

 

Investing in precious metals like gold and silver gives you many benefits for your retirement portfolio, including protection against inflation and financial crises.

Adding precious metals to your portfolio is one of the best ways to diversify, grow, and hedge your investments. Let’s take a close look at the 5 reasons why precious metals are a good investment.

1. Precious metals are insurance on your investment portfolio

Precious metals investments can create an insurance policy (financial insurance) for the rest of your portfolio. Gold and silver are two metals that are inversely correlated with the stock market and nearly every other asset class out there. When these markets go down, the price of gold and silver tend to rise. When these markets go up, gold and silver usually maintain their prices. 

Why are gold and silver investments a great hedge against inflation and economic crises? Precious metals like gold and silver thrive in times of economic crisis and uncertainty. Take the Covid-19 pandemic, for example. While the entire country (and world) was in a state of uncertainty, gold and silver prices appreciated. And during “The Great Inflation” (HyperInflation) of the 1970s, gold rose over 2,200%, and silver prices increased by an impressive 3,100% (1976–980).

Remember, history often repeats itself, and you still have time to insure your other investments by diversifying a portion of your portfolio into silver and gold.

2. Gold and silver provide optimal diversification

You know about the importance of diversifying your portfolio, but are you diversified enough? While it’s good that you’ve got a stake in the tech industry, and you even made it into the green energy sector just in time, there’s more to diversifying your investments than finding different sectors to latch onto in the stock market. 

You have to diversify outside of the paper asset markets to protect and secure your financial future. When you diversify outside of the stock market, for instance, that portion of your portfolio is protected against market volatility and large corrections.

Although there are various ways to diversify, precious metals investments help you achieve optimal diversification because they typically increase in value when other asset classes go down (including stocks, bonds, real estate, and the dollar). 

The change in the gold and silver prices from 2019 through 2020 show us that not all metals act the same. Diversifying your precious metals investments or adding different metals to your IRA can give you an edge on other precious metals investors.Both gold and silver tend to move hand in hand with each other and in the opposite direction of the stock market and other paper assets like the dollar.

Take a look at this chart that shows major financial corrections of the past. The red shows how the stock market performed and the gold shows gold’s performances during the same time.

During market corrections, gold investing is an effective risk hedge.

As you can see, when the stock market was down, gold went up, proving that it’s essential to move a portion of your nest egg  out of the stock market to hedge against uncertainty and volatility.

3. Gold and silver are tangible assets

Precious metals have intrinsic value. Simply put, intrinsic value means that something has value in and of itself. To put this into perspective, imagine you have a bar of gold and a $100 bill. Take that $100 bill and tear it in half. Shred half of the bill, and you have no money whatsoever. Now, do the same with your bar of gold. Instead of having no value, the gold maintains its gold bullion value … it’s just in several different pieces. 

4. Gold and silver are in high demand

Gold and silver aren’t just investment assets either. They’re used in technology, electronics, in dentistry, and for ornamental purposes. This means there will always be a demand for these precious metals, and industrial demand continues to rise, especially in EV batteries, solar, and the new 5G technology build out.

Silver has grown in demand over the last 40 years, and not just as an investment. Silver is more and more often used as an industrial metal, making its intrinsic value skyrocket.

One of the most secure aspects of precious metals is that they cannot be compromised like stocks and bonds.  If you have your precious metals stored securely, in a depository, no one can enter it through the dark web and remove your gold.

Precious metals cannot be printed, diluted, or duplicated either. Take a look at the money print orders that have taken place over the last decade.

The value of the dollar has decreased considerably because of all this money printing, but the value of gold has gone up, up, up. This is because there is a finite amount of gold in the world, but dollars can be continuously printed.

Gold and silver are also out of reach of the banking system. This is one of the reasons gold and silver tend to spike during times of economic crisis. We are all losing our trust in the banking system and the way the government is handling our money. Buying physical precious metals like gold and silver gives people a chance to achieve financial security without relying on these entities. 

5. There is no third-party risk with physical precious metals

When you invest in physical gold and silver, you don’t have to worry about third-party risks. A third-party risk, or a counterparty risk, is the risk of someone else (whom you have no control over) involved in a deal negatively affecting the deal or being unable to complete their duties in a transaction and may default on their contractual obligation.

With physical precious metals, you own the gold. That means you don’t have to rely on a third party that you have no control over for its underlying performance. 

Is now a good time to invest in precious metals?

Gold has been used to secure wealth for over 5,000 years, and precious metals remain a sought-after and prudent investment. Just look at how gold performed in 2020. In times of economic crisis or threat of economic uncertainty, gold and silver do well by protecting and growing your portfolio — precious metals are a good investment.

The stock market, at present, is dangerously overvalued and has formed an enormous bubble, and the real estate market is now at its 2006 peak. Asset bubbles are everywhere.

If you engage in the markets in an unprotected fashion, you may not want the unexpected surprise.