Nothing has been considered a valuable commodity longer than gold and silver. This day and age, precious metals are a commonplace among knowledgeable investors’ portfolios. But when dealing with precious metals, which one is the best for investment reasons? And why are they so volatile? Are you new to the precious metals world and how they operate and where and how to invest? Read on to find out the many ways to buy into gold, silver and platinum and the many reasons to give in to the precious metal craze.
AS GOOD AS GOLD!
Starting with the king of metals – GOLD. Gold is extremely durable – as it doesn’t rust or corrode – and is very malleable with its potential to conduct electricity and heat. We know gold for it’s use in jewelry and currency, but it also manifests itself in electronics and dentistry.
The value of gold is determined by the market 24 hours a day, nearly seven days a week. Gold trades predominantly as a function of sentiment; its price is less affected by the laws of supply and demand. This is because new mine supply is vastly outweighed by the sheer size of above-ground, hoarded gold. To put it simply, when the hoarders feel like selling, the price drops. When they want to buy, new supply is quickly absorbed and the gold prices are driven higher.
There are a few points to factor in when there’s a desire to hoard gold:
- Systemic Financial Worries
Gold has and will always be sought as a safe value, especially when the banks and money seem unstable or have some political questioning beside it.
When the actual rates of return in the equity, bond or real estate markets take a downward slide, people will always look to gold as an asset that will maintain its value.
- Political Crises and War
War and political unsettling can see folks hoarding gold. When one’s entire lifetime saving’s worth can be portable and stored until it needs to be traded for food, shelter or safety on to a less dangerous destination.
The price of silver goes back and forth between its once perceived role as a valuable commodity and its very tangible role as an industrial metal. For this reason, there are price fluctuations in the silver market that have proven more volatile than gold.
Even though silver trades roughly the same as gold as an investment item to be hoarded, the industrial supply & demand equation for the metal give off an equally heavy influence on prices. That equation has always fluctuated with new innovations, including:
- Silver used to have a large role in the photography field (silver-based photographic film), which has now been overrun by the arrival of the digital camera.
- The rise of a huge middle class in the new market economies of the East, which have made for an incredible demand for medical products, electrical appliances and other industrial items that require silver. Whether electrical connections or bearings, silver’s main components have made it a desired commodity.
- Silver is used in batteries, superconductor applications and microcircuit markets.
Will these developments affect regular demand for silver? One thing still remains: silver is not just used in a fashion sense, but is also affected by its applications.
Will Precious Metals Shine for You?
Precious metals offer unique inflationary protection – they have intrinsic value, they carry no credit risk and they themselves cannot be inflated (you can’t print more of them). They also offer genuine “turmoil insurance”, against financial or political/military upheavals.
From an investment standpoint, precious metals have provided a low correlation to other asset classes like stocks, bonds and mutual funds. This means that even a small percentage of precious metals in a portfolio will reduce both volatility and risk.
Precious metals have and will always provide a useful and effective means of diversifying ones’ investment portfolio.