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Four Reasons to Consider Investing in Precious Metals

Why invest in precious metals
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Financial markets are no stranger to volatility and uncertainty, as they’re affected by what’s happening in the world around them. As a result, investors are continuously looking for ways to safeguard their wealth and ensure long-term stability where possible, to reduce risk and minimise losses.

Precious metals such as gold and silver have long been recognised as intrinsically valuable, and particularly so in times of economic change. When used in the right way, they can greatly complement an investment portfolio. Here, we explore four reasons why you should consider investing in precious metals.

Why consider investing in precious metals?

1. Intrinsic value

Many financial assets derive their value from market predictions and the rise and fall of the economy. But precious metals possess intrinsic value. This means they are valuable just because of what they are, regardless of many external factors. As such, they have been used as a symbol of wealth and status for thousands of years.

Although many countries mine and process tonnes of gold and other precious metals each year, they are limited resources. This means they cannot be reproduced like fiat currencies. Their scarcity adds to their value and drives the push and pull of supply and demand.

2. Supply and demand

Precious metals have many uses; for centuries people have used them to adorn their bodies, homes and places of worship. As well as being a decorative item, the physical properties of some precious metals also make them indispensable for many industrial and technological applications.

For example, gold and silver are used in multiple medical devices, electronics and even in renewable energy tools such as solar panels. Platinum and palladium are both used in catalytic converters, which reduce harmful emissions emitted by vehicles. The industrial demand for precious metals underpins their value and makes them an appealing choice for savvy investors.

It stands to reason then that investors can leverage supply and demand of precious metals in their favour. You can invest tactfully in either the direct resources or the mining companies who produce them. As with all investments, it does take skill and a little bit of luck when predicting the market. However, it’s possible to earn a profit from trading precious metals.

3. Hedge against inflation

Inflation causes a loss of purchasing power and a reduction in the value of money, stocks, shares and similar investments. But precious metals maintain their value over time. They are not typically negatively affected by inflation, economic crisis or geopolitical conflict. As such, they have historically acted as a hedge against inflation.

During times of economic instability, precious metals tend to perform well. As stock markets plummet, the price of gold and similar metals often surges. Therefore, it can be something of a safe haven during times of market volatility for investors.

4. Diversification in your portfolio

Experts often recommend dedicating around 5 – 15% of your investment portfolio to precious metals. They can help you mitigate investment risks because their price movements typically don’t correlate with those of more traditional assets such as stocks and bonds. This means that when the equity market is volatile, the value of precious metals rises, providing a stabilising effect. Gold especially has high liquidity, meaning you can sell it quickly and easily and more often than not, you won’t lose money on it.

How to invest in precious metals

There are several ways to incorporate precious metals into your investment portfolio, each offering varying levels of convenience and control. Here’s a breakdown of the most common methods:

  • Physical Metals: Owning physical gold, silver, platinum, or palladium bars and coins provides a tangible asset with a long history of holding value. While offering a sense of security, physical metals require secure storage solutions and may come with additional insurance costs.

  • Exchange-Traded Funds (ETFs): These investment vehicles track the price of precious metals without the need for physical storage. ETFs offer a convenient and diversified way to gain exposure to precious metals, often with lower fees compared to actively managed funds.

  • Mining Company Stocks: Investing in companies that mine and refine precious metals allows you to potentially benefit from rising metal prices, along with the possibility of dividend payouts. However, the performance of mining company stocks can be influenced by factors beyond just the metal price, such as a company’s specific operations and management.

The best approach for you will depend on your individual investment goals and risk tolerance. Consider factors like your desired level of control, liquidity needs, and comfort level with managing physical assets.

Conclusion

Investing in precious metals is often a reliable way to safeguard your wealth and diversify your investments. It can help you to overcome market instability and offer you greater security for your financial future. Always seek professional advice when investing and be prepared for the inevitable risks of such activities. With a clear understanding of why precious metals are a beneficial investment and a sensible strategy, they could become a welcome addition to your investment portfolio.

Reasons to consider investing in precious metals

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