The COVID-19 pandemic gave rise to the economic instability that even the prices of crude oil were falling due to a reduction in production. Buy gold bullion as an investment to hedge against market volatility, as it often retains value and can be more resilient during economic downturns. Although crude oil is a major commodity in the global market, precious metals may be more profitable, especially as it does not correlate with stocks. Also, in periods of volatility, metals like silver and gold hold value.
Because of this value holding ability, many investors are considering investing in metals such as gold. If you would like to join the train but need more conviction, we will discuss other reasons you should invest. But before you start scouting for custodians for your investment, you may want to read the APMEX scam report so you can clearly identify a reliable precious metals dealer.
6 Reasons to Invest in Precious Metals
Below are 6 reasons why you should invest in precious metals.
1. Ease of Purchase
You can easily buy silver and gold from banks, bullion dealers, and market dealers. In addition to being accessible, with the right knowledge, you can identify an authentic metal. Investors can afford to own bullion with any amount of funds at their disposal because the price is economical.
Also, you can choose to invest in different forms of metal such as bars, coins, and jewelry. Even if you cannot afford to buy an ounce of gold, silver is a reliable and affordable metal. In some countries, people give out silver ornaments, coins, and billions as a gift.
2. Essential Industrial Use
You can typically find gold and silver in everyday items such as phones, vehicles, silverware, electronics, batteries, ornaments, and jewelry. They are also used to manufacture medical equipment and solar panels. These metals are indispensable and possess rare characteristics with respect to thermal conductivity, electrical conductivity, and reflectivity. These properties make them essential in industries.
3. Increase in Global Demand
Despite the market volatility and economic uncertainties surrounding precious metals, global demand continues to increase. This is because silver and gold serve as a safe haven for business owners and investors during periods of crisis.
Furthermore, jewelry manufacturers make huge profits because of the high demand. This is also the case for retailers who sell various pieces of jewelry and ornaments on a large scale.
4. High-Level Anonymity
Investors can hold precious metals without any public records of the holdings or their transactions. This level of anonymity keeps your holdings safe from government confiscation and theft. Also, they are liquid investments; you can purchase and sell with ease. You can also get your money quickly after selling them.
5. Portfolio Diversification
Different countries mine metals in different forms. This allows investors to diversify their portfolios with various metals from different markets. You can use them to hedge against inflation particularly if you cannot access traditional financial insurance like bonds or stocks and savings accounts.
A good example is gold, which performs better when held for a longer period. Since 2000, it has risen against the dollar by above 500%. Between 2002 and 2011, each year witnessed an increase with a 9% annual return. Although it dropped in 2008, it recovered quickly and rose continuously for five years.
During periods of recession, gold prices may drop but they still outperform stocks as well as other investments. This is because when there is instability in the market, more people turn to gold, thereby, pushing up the price. You can get tips for portfolio diversification.
Read here: Understanding Business Diversification – Business Strategies
6. Huge ROI Potential
The high demand and short supply of precious metals drive the prices higher. Since 1965, the gold mining rate has increased by 2.5 percent each year. As new technologies emerge, miners learn new ways of exploiting deposits that were previously considered difficult to mine.
For example, there are now more efficient means of extracting natural deposits from rock, seawater, and other locations. As a result, miners now have more access to areas that they thought were not worth trying.
Additionally, the increase in world population increases the demand for jewelry. In the last 100 years, about 6 billion ounces of gold were consumed but only an estimate of 6 million troy ounces were mined. This explains why you should choose 24karats if you want investment-grade bullion instead of ornamental value.
How to Invest in Precious Metals?
Now that you have seen why you should add precious metals to your portfolio, you may also like to know how to start investing. There are several methods you can explore. They are:
1. Purchase the Physical Commodity
This simply refers to buying coins and bars that you will store using your own means. It does not involve any counterparty risk. It also gives you an understanding of the spot price so you will know when to purchase.
2. Invest in ETF
When you buy physical bullion, you may face storage issues, which is why you can invest in ETFs (exchange-traded funds). The major benefit of this option is liquidity. You can buy or sell the shares via a brokerage account. It is cost-effective and convenient. You can read articles to get more information on investing in ETFs.
3. Buy Shares from Mining Companies
This option involves seeking companies that mine precious metals to buy their shares. Although it does not grant you ownership of the assets, you will benefit from the rise in stock prices.
The Drawbacks of Precious Metals Investment
There are 2 primary limitations to consider before investing. First, bullion is considered a commodity, which means you plan to resell at a high price. While the commodity holds value during a recession, it does not generate cash flow or interest. Second, you should be ready to pay shipping and storage fees in addition to the cost of bullion.
Final Thoughts
Some investors are emotional about investing in precious metals, but you need to make investment decisions out of facts, not emotions. We discussed some reasons why you should invest. Therefore, the allocation you choose to hold in your portfolio should match your peculiar circumstances.
You also need to know that when you invest a lot of funds in metals, the risk of losing the gains in other classes of assets is high. However, having too little or no precious metals in your portfolio can subject it to more risk.
