Investing in precious metals has long been regarded as a strategic move to diversify portfolios and hedge against economic uncertainties. We personally consider metals like gold and silver to be some of the most sensible investments one can make and recommend them any chance we get.
While there are several factors behind the popularity of these precious metals, the most impactful, in our opinion, is their long history. Metals like gold were associated with wealth thousands of years ago. Humans even started using gold as currency around 2,600 years ago.
That said, why should you invest in these precious metals today? Keep reading to find out!
Diversity of Precious Metals for Investment
A neat thing about precious metals is the variety of options available as there are eight different metals that fall under this classification. That said, we’ll mainly focus on the following four in this guide:
Let’s take a closer look at each of these precious metals and see what they have to offer.
Gold is the most popular and priciest of these precious metals, and understandably so. Given its intrinsic value and long history over thousands of years, most humans are practically conditioned to associate gold with luxury and wealth.
In more practical terms, gold is also considered a safe haven asset; something investors buy to protect their wealth from inflation and recessions.
Many consider silver to be the more affordable alternative to gold which makes sense. After all, silver has a very similar “safe haven” status as gold while being 86 times cheaper (at the time of writing).
That said, one area where silver differentiates itself from gold is its demand from the industrial sector. Almost 50% of silver’s yearly supply goes to industries like electronics, medicine, and solar power. It is a good idea for investors to buy both gold and silver, and this article will show you how much money to attribute to each.
Platinum and Palladium
We bunched platinum and palladium together since they’re similar in a lot of ways. For example, they’re both significantly rarer than gold, but still cost less. Speaking of price, they’re also valued within a similar price range of 1,000-1,100 USD per ounce.
Not only that, but these two precious metals also share similar industrial uses as key components in catalytic converters. If you are interested to learn more about each of these metals, see this article on Platinum vs Palladium.
Now that we have covered the main precious metals for investing, here are the main benefits of investing in precious metals:
Hedge Against Inflation
The ability to resist the ever-looming threat of inflation is the most important benefit of precious metals for us. Let us explain.
In simple terms, the value of fiat currencies (like USD, GBP, EUR, and CAD) drops over time as more are created by their respective treasuries. This phenomenon is called inflation.
For example, if you stored 1,000 USD cash at home in the year 2000, that 1,000 USD would have a value equivalent to about 550 USD in 2024. In other words, you would suffer a 45% loss due to inflation.
Now, let’s assume instead of storing your cash, you used 1,000 USD to purchase gold which was about 285 USD per ounce at the time.
At the time of writing, one troy ounce of gold is worth 2,066 USD. So, instead of losing almost half of your money, you would make a profit of close to 625%. This is done simply by investing in gold and holding on to it.
Economic Uncertainty and Market Stability
This might seem like a similar benefit to the one we discussed above, but that is not true. While inflation is a relatively slow process that erodes the value of money over years, a recession can take effect within months and render your portfolio worthless.
Fortunately, precious metals provide protection against these uncertain economic conditions as well. Gold and silver are especially effective at preserving their value, regardless of how the rest of the market is performing.
We don’t even have to look far to find proof of this either. Between February and March of 2020, the S&P 500 index dropped nearly 3.2% due to the global pandemic. At the same time, the price of gold started increasing and by the time this climb stopped, gold was worth ~22.8% more.
Going a bit further back, we find an even better example of this during the 2008 recession. From January 2008 to 2009, the S&P index plummeted from over 1,400 USD to just ~800 USD. During the same period, the price of gold actually went up from 800 USD to about 920 USD per ounce.
“Don’t put all your eggs in one basket.” Nowhere is this advice more true than in the world of finance. Investing all of your money in a single asset is never a good idea. All it takes is a single crash and you can lose everything.
The easiest way to avoid such a fate is to diversify your investment across a number of different assets and precious metals are the ideal option for this job. Given their decades-long track record, you can be fairly confident when investing in gold or silver.
From what we’ve seen, these metals provide a much-needed safety net for your portfolio.
Liquidity and Accessibility
Another massive perk of precious metals in our eyes is their extreme accessibility. You can buy them relatively easily from both online and local dealers. Plus, unlike crypto or stocks, there is little technical know-how required to understand the inner workings of the precious metal market.
Liquidating these metals is also just as effortless. There are numerous online dealers that purchase these metals via mail. Or you can just go to your local jeweler or pawn shop and they’d be happy to purchase them from you.
Long-Term Value Retention
Last but not least is the long-term value retention of precious metals which is due to their non-corrosive nature. These metals do not erode over time, so an ounce of gold purchased 50 years ago would still hold the value of one ounce.
This is also why we recommend setting up a precious metal IRA to ensure financial security for yourself once you hit retirement. If you are interested in how to do this, see this article on starting a precious metals IRA.
All things considered, precious metals are some of the most reliable and trustworthy assets on the market. Their ability to withstand inflation and recessions is unmatched by any other investment option.
That said, we suggest you do your own research and consult a financial advisor before making any major investment decisions.