Precious metals are a wonderful investment. In fact, more people are choosing to add gold, silver, and other metals to their investment portfolios. What benefits come with doing so?
Portfolio Diversification
Gold and silver tend to be negatively correlated or have a low correlation to stocks and bonds. This means when most financial assets are declining, precious metals often rise in value or hold steady. By allocating a portion of your portfolio to gold and silver, you are reducing overall portfolio risk and volatility. Diversification allows you to participate in bull markets while also providing some downside protection in bear markets.
Inflation Hedge
Gold and silver have a long-standing history of serving as effective hedges against inflation over time. Historic examples like Weimar Germany and more recently Venezuela demonstrate how runaway inflation can destabilize economies and wipe out the value of paper money. Gold and silver tend to hold their value as prices rise across an economy. In fact, countless people today are looking to gold and silver to combat inflation, as they are seeing rising prices across the board.
Limited Supply
Unlike fiat currencies, which can be printed without limit, gold and silver supplies are finite. Silver production from mining has been declining in recent years as ore grades diminish. Gold is also increasingly difficult to find and mine economically. Limited supplies support the long-term value of precious metals as demand continues to grow. These metals are used in places most people aren’t aware of, including in consumer electronics they use every day. Their scarcity and high demand make gold and silver desirable safe havens for investors.
Tangible Assets
In a digital age, when wealth can sometimes seem virtual, gold and silver represent real, tangible assets that cannot vanish in a financial crisis or power outage. There is a psychological comfort in owning hard assets during times of economic uncertainty. While NFTs have increased in popularity in recent years, countless men and women want tangible items they can hold in their hands when the economy takes a downturn. The gold and silver give them comfort and peace of mind during trying times.
Long-Term Returns
Past performance does not guarantee future results. However, gold and silver have historically performed well over long periods of time. For example, from 1970 to 2020, gold gained an average of 10% per year. Silver gained 11% annually over the same period. This compares favorably to the S&P 500’s annualized return of around 7% during that timeframe.
Beyond those 50 years, gold has maintained its purchasing power very well across centuries. There have been periods of major bull and bear markets for precious metals, but gold and silver have shown resiliency and maintained appreciating value over the very long run. As assets with limited quantities and global demand, gold and silver can provide not only stability but also portfolio growth when held for long time horizons. Prudent investors often utilize a ten to twenty-year strategic outlook when investing in precious metals. While short-term price swings can be volatile, gold and silver have historically rewarded patient investors over the long haul.
Global Demand
Not only do investors buy precious metals as safe havens, but there is also strong global demand for gold and silver from industries such as electronics and jewelry manufacturing. Rising wealth in emerging markets further bolsters demand, especially for gold. The worldwide appetite for gold and silver helps support prices.
Portability
One of the advantages of precious metals is that they are easily portable. This makes them ideal assets for geographic diversification or owning a physical store of value that can be kept nearly anywhere. If a person must change locations quickly, they will appreciate having a portable asset that can be used as currency anywhere in the world.
Adding exposure to gold and silver has historically been an effective way to diversify portfolios and protect against inflation or economic turmoil. Many investors today utilize a 5-15% allocation to precious metals for stability, growth potential, and risk reduction. Gold and silver’s physical properties, limited quantities, and global demand underpin their value over the long run. Considering a precious metals component can potentially improve investment portfolio performance. Talk to your financial advisor to see if investing in gold and silver is right for you.
