Investing in precious metals is becoming increasingly popular as more and more investors are interested in absorbing the risk for a higher return. Gold and silver are the front-runners, but there are other investment opportunities, such as platinum and palladium, that actually get an extra roar when the gold is skyrocketing. In fact, lesser-popular precious metals can make a huge difference in a diversified portfolio.
The global financial crisis, the political turmoil in the Middle East, and the structural issues of EU’s peripheral debt have led many investors to precious metals. Forex investing is under pressure and the high government deficits or even the event of a Trump election in the United States in November make the markets waltz. In fact, every time the interest rates decrease, government deficit spending increases and the price of precious metals, especially gold, appreciates.
Why Should You Consider Precious Metals?
Investing in precious metals is an effective strategy to protect your investment portfolio from swings in inflation and other macroeconomic pressures. In fact, the austerity measures imposed in certain countries of the Eurozone as a way to anticipate and handle the global financial crisis have led to the devaluation of securities and the appreciation of commodities. So, investors who held precious metals in their portfolios had a good reason to be happy about.
The main advantage of investing in precious metals is that their value is universal, meaning there are no inconsistencies in their price from market to market. Therefore, investors can use precious metals as global currencies anywhere in the world.
Moreover, investing in gold can leverage inflation risk. The value of gold stays intact, and it is not affected by inflationary pressures. Sometimes, it may even appreciate, especially in a declining market. Therefore, people invest in gold as a way to protect their property and wealth in a bear market.
Furthermore, the value of precious metals is historically appreciating, especially in the long-term. For example, in 2012, the value of gold has appreciated 30.6% in 2010 and 8.68% in 2012, both in years that the stock market has faced the consequences of the financial crisis. Gold currently trades at $1,256.20. On the same page, palladium currently trades at $650.70 due to the increasing demand in industrial manufacturing.
One thing you should always have in mind when investing in precious metals is that they are highly correlated. This means that a change in the price of one precious metal causes a change to the price of another. Moreover, it is not certain that these changes will be to the same direction. Although precious metals tend to move in the same direction, up or down, together, there are cases that the price of gold has appreciated, thereby making silver more affordable.
The Bottom Line
Investing in precious metals is a great strategy to leverage portfolio and equity risk, especially during market downturns. However, to fully capitalize on the benefits of precious metal investing, you should invest in a long-term horizon while meeting short-term goals.
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