For thousands of years, precious metals have always been a symbol of wealth. Two of them in particular–gold and silver–have also been used as currencies in one form or another throughout history. Now, however, because of their relative rarity, they’re deemed too expensive for modern currencies. But, as an investment, precious metals are an excellent way to store wealth and serve as a hedge against economic downturns.
While it’s true that the commodity that dominates the international commodities market is crude oil, precious metals are slowly emerging to challenge crude oil’s reign of dominance. The metals’ growth has been steadily rising since 2020, and savvy investors are beginning to take notice. Some other commodities may be experiencing a downturn, but precious metals, like gold and silver, aren’t only holding their own but are actually gaining.
So, should you invest in precious metals? Let’s explore some reasons to add them to your portfolio:
Easy To Acquire
The two most recognizable precious metals are gold and silver, which can be easily purchased from any market dealer, bank, bullion trader, or gold broker. Not only are they accessible to any interested investor, but they’re also quite easy to find–you don’t have to jump through a lot of hoops to buy them – provided, of course, that you have the financial resources, the need for them in your financial plan, and the knowledge about what purpose they can serve.
Furthermore, if you’re thinking of investing in precious metals, you have several options besides the more expensive metals such as gold. You can opt for less expensive but no less reliable metals like silver and others. Other than gold and silver, the other primary precious metals include platinum and palladium.
Hedge Against Inflation
Precious metals like silver and gold have been rising in value since 2019. When the pandemic hit in 2020, investors stockpiled precious metals to protect their wealth. As a result, prices of precious metals surged.
For instance, by 2021, palladium and gold prices had risen by around 20%. Platinum was up by 10%, while silver posted the biggest gain, going up by around 47%. Experts expect gold and palladium prices to go up by 2021. Silver, however, will be the precious metal to watch.
Following the trends, many retail investors are likely to jump into precious metals. This is because precious metals aren’t only a ‘safe haven’ asset (a type of investment that’ll keep its value even in economic downturns), but they can be hedges against inflation. Assets that are considered inflation hedges, like precious metals, protect your capital against a currency’s decreasing purchasing power. If inflation continues to raise its ugly head, the prices of precious metals are expected to increase.
Inflation can erode an investor’s capital, especially when the economy is hobbled by uncertainties. That’s why assets like gold and other precious metals that maintain their value are often used by investors as portfolio diversifiers. Investing in gold has historically been a way to maintain a strong portfolio in times of uncertainty.
Precious metals are a good inflation hedge because they have intrinsic value. Also, they don’t have credit risk and their value doesn’t become inflated; you can’t print more of them, unlike fiat (paper) currencies.
Precious Metals Have Vital Uses
They aren’t just assets, but precious metals also have practical uses. They’re used in electronics, jewelry, silverware, and have industrial applications. They’re also vital components of the various major industries in manufacturing different items, like solar panels, medical equipment, space telescopes, and others.
Gold is also used in many medical applications, including treatment for arthritis, stomach ulcers, and for detecting and investigating cancer cells in the body. Gold and silver, in particular, share unique characteristics– thermal conductivity and reflectivity–that make them unique.
Platinum, one of the most precious metals, is more ductile than gold. It’s also malleable, although not as malleable as gold. It’s also exceptionally resistant to corrosion and, in terms of rarity, platinum edges out gold–it’s 15 times rarer than King Midas’s favorite metal. In truth, platinum, because of its functionality and rarity, could be the most precious in the list of precious metals. But gold is gold–it has its own special characteristics.
Palladium shares a few characteristics with platinum. It can convert harmful engine exhausts into carbon dioxide and water vapor. Moreover, this metal is stable even at high temperatures. It’s used mainly in catalytic converters and electrical contacts, too.
Precious metals are indispensable to the modern world. Demand will always be there.
Worldwide Demand Is Increasing
Global demand for precious metals, particularly gold and silver, has been steadily increasing in recent years. Due to economic uncertainties brought about by the 2020 pandemic, they’re outperforming other assets and commodities in the stock market. According to a report by Research and Markets, the global precious metal market was valued at more than USD$180 billion in 2019. By 2027, it’s estimated to reach almost USD$420 billion.
The main driving factors for the increasing demand are the electric vehicles industry, increasingly stringent carbon emission standards, and jewelry uses.
Precious metals always thrive in times of economic downturns. Savvy investors use them as safe-haven assets and as portfolio diversifiers. They’ll also protect your capital from inflation.
Precious metals are also indispensable components in the modern world. Not only are they used in jewelry, but they also have practical functions. Their medical, industrial, and technological uses ensure that demand will continue to increase in the coming year.
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