Precious metals are valued for their unique properties and their rareness, and over the years their values have sky-rocketed, making them a target for investors. In fact, precious metals can be found on the portfolios of most serious investors, and not without reason. In this article we’ll take a look at why precious metals (including gold, silver, palladium and platinum) are an investment that you need to make.
Hedging Your Bets
The reason most investors trust in precious metals, is because these markets tend to do well when the US dollar suffers. And when you consider that a dip or a crash in the stock markets is usually connected with a weakening dollar, you begin to understand just why big-time investors like to have a portfolio that is balanced between stocks and precious metals. Put simply, they know that a drop in one area will likely signal a rise in the other.
Between 1998 and 2008, the dollar struggled against other currencies, and as a result the price of gold increased threefold. There is also some recent precedent for this, because when a drop in the price of oil sent global markets into turmoil towards the end of 2015 and the beginning of 2016, the price of gold increased significantly. And when gold increases, other precious metals tend to follow.
Gold is also seen as a hedge against inflation, and is therefore a more viable way of protecting your money over the long-term, and it is also a guard against deflation.
Gold has always played an integral role in human society, and it has always been highly valued because of its beauty, its uniqueness and its rarity. This was true thousands of years ago, when gold was used to create relatively pointless ornaments, and it is true now, when gold is an essential element in many industries. Gold is very rare and it takes a lot of time, money and effort to mine it, even with advanced mining techniques.
What’s more, gold has held its value longer than anything else. And the same applies to silver, platinum and palladium. In the case of silver, it might be easier to mine and more abundant, but this is offset by the fact that it plays even more of an essential role in many modern industries.
Other Reasons to Invest in Precious Metals
- Numismatic Premiums: Like limited edition comic books and novels, there are coins minted to a higher standard and produced in lower numbers, and these carry a substantial premium. In fact, in some cases you can pay more than 1,000% over the intrinsic value. However, in most cases the value of these pieces will increase irrespective of the precious metal value. It doesn’t apply in all cases, of course, but if a coin or a series of coins becomes popular, then in a matter of months its value can skyrocket. Such is the case with many of the limited edition coins produced by the New Zealand Mint in conjunction with the Perth Mint.
- Surprise Premiums: Bullion coins often have unlimited montages and do not change year to year, but there are exceptions. Many of the bullion coins produced by the Perth Mint, for instance, change designs year to year, and they became more sought after by investors as a result. This means that even though they can be purchased for close to spot price one year, they might carry a substantial premium in the years that follow. Such was the case with many of their early releases in the Lunar series.
- Supply and Demand: Most of the gold being mined every year, is turned into bullion and sold to investors. In the past, central banks added to this supply by selling their stockpiles, but since the global recession of 2008, these banks have tended to hoard their supply. Add to this the fact that mining production has slowed, and you have a situation in which the demand is stronger than the supply. And we don’t need to tell you what that means.