The financial markets often seem scary and confusing to most people. Stocks and bonds lose their value and fluctuate wildly over an extended period of time. Gold, silver, and other precious metals are an attractive option for people concerned with these fluctuations.
Precious metals are a relatively stable, ancient source of wealth that can be a key part of hedging risks, inflation, and helping diversify your portfolio. In this article, we’ll discuss some actions you should take and actions to avoid when considering adding gold or silver bullion to your investment portfolio.
DO Take Advantage of Countercyclical Economics
When investing in precious metals, one should always remember that these investments are “countercyclical,” meaning they tend to move opposite of the traditional business cycle that stock and bond investments are tailored to. Traditional stock investments increase holdings when businesses are booming and sell when they begin to decline. Not so with precious metals.
The secret to success for many stock investors is to buy a little low and sell a little high in order to maximize returns. A period of economic growth, low unemployment, and high business profits often means high returns in the stock market. The term for these investments is cyclical, meaning that they increase and decrease along with the rest of the economy in general.
Precious metals like gold, on the other hand, thrive in times of economic downturn and inflation—two factors that often do not occur at the same time but are usually indicative of poor economic performance. When stocks turn downward, investors want to get out of securities and move part of their money to more stable sources of funding.
Gold is an alternative to extremely low-interest savings accounts or T-bills, and increased purchases in gold and other precious metals means increased demand and an increased price.
DON’T Underestimate Inflation
Gold and other rare metals also combat inflation. Holding wealth in the form of paper money means you will inevitably be losing value over a long period of time. Inflation is often tied to the increase in supply caused by central bank management or commodity shocks.
Gold, silver, platinum, and other metals, however, are not subject to these fluctuations and maintain their value in other applications. For instance, the desire for gold in jewelry and platinum in the automotive industry ensures these metals stay in high demand no matter the fluctuations of the dollar.
Investors should also consider the storage costs associated with precious metal investments. Some companies offer the use of a vault to store physical bullion bars that is more secure and insured than safety deposit boxes at banks or your home. There may be higher storage costs for different types of gold and other precious metal investments.
A cheaper rate is typically offered for people who choose to store their gold collectively with the bullion and coins of other investors, rather than in a segregated area. If a person is simply buying bullion, they may not care if “their” gold is kept to itself. As a potential investor, you should be familiar with this inherent difference if you hope to reduce your fees by as much as possible.
DON’T Treat Bullion and Coins the Same
Investors should never treat bullion and coins the same way. Why? Because coins typically have a different level of value associated with them than bullion. While bullion is valued according to its weight, purity, and the price of the metal, coins are appraised by their weight, rarity, and a possible collector’s value.
For example, a rare Spanish piece-of-eight and a buffalo gold coin may weigh the same, but the piece-of-eight could be worth one hundred times more than a buffalo gold coin due to its rarity.
Most coins do not have this massive disparity in price, but the price swings can be significant and contingent on the actions of private brokers and valuations that are not necessarily connected to the overall price of the metal. A skilled broker can help navigate an investor through the myriad of metal and coin offerings that bullion companies have and find out what strategy is right for the investor.
DON’T Rush Into Investing Without a Plan
Investors also should not rush into a large stake in gold or silver without proper planning. The average investor portfolio should have a diversification strategy, and precious metals can play an important role in that regard.
A wise investor does not pour all of his or her money into the first set of gold coins they find and then wait for returns. Rather, precious metals investment needs to be part of a strategy that hedges against global instability and the volatility of the financial markets.
Gold can clearly be a key part of any diversified portfolio, along with silver and other rare metals. It can help hedge against the risks of the 21st century market and serve as a protection for investment wealth in a tangible physical good.
The prospect of precious metal investing, with its many factors of growth and types of investment, may be daunting. But with the right help and the right platforms, anybody can harness the prospects of adding gold to their portfolio.
If you are ready to invest in physical precious metals, browse our wide selection of bullion, bars, and coins made of gold, silver, platinum, palladium, and copper.