The Role Of Precious Metals In An Investment Portfolio

The Role Of Precious Metals In An Investment Portfolio
Gold and silver ingots isolated on white background. 3D illustration.

Precious metals have been traded and used as currency for a very long time. Even today, precious metals have a valuable role to play in any investment portfolio. The metals that are talked about when discussing investment portfolios are gold, silver, platinum, and palladium. 

As always, before making a serious decision with regard to your investment portfolio, you must consult with your investment broker. And, to learn more about the precious metals you ought to take into consideration, you may visit sites like https://www.oxfordgoldgroup.com/.

However, in the meantime, this article will be a good introduction into the different precious metals that are being traded, and the roles they play in the stock market. Also, you’ll learn about the things you need to take into account when managing your investment portfolio.

Gold

Gold is the most popular precious metal, and for good reasons. The shiny metal has captured hearts for centuries and its usage has not been limited to just currency. A significant percentage of gold production each year (estimated to be around 40%) finds its way into the stockpiles of individual investors and governments. Also, gold’s price is less likely to be affected by supply and demand than other investments. 

Silver

Silver, unlike gold, isn’t an absolute safe haven. The price of silver may fluctuate greatly between its role as a store of value and its role as an industrial metal. This gives its supply and demand equation a strong influence on its ever-fluctuating price. Because of its various applications as an industrial metal, it may provide investors with capital appreciation opportunities. 

Silver is currently used in a number of industries, mainly in jewelry production, superconductor application, microcircuit markets, and electrical appliances.

Platinum

Platinum is traded 24hours a day on the global commodities markets. Because it’s rarer than gold and less of it is mined, it tends to fetch a higher price than gold per ounce. There are a couple of other factors that determine its price. Like silver, it’s considered an industrial metal. It’s used as an automotive catalyst in petroleum and chemical refining, as well as in jewelry.

Due to the recent legislation passed worldwide on ‘clean air emissions’ with regard to automobiles, platinum prices have been determined largely by the automotive industry.

Palladium

Palladium is the notably lesser-known metal on the list. Unlike gold, sliver, and platinum, which enjoy a lot of popularity for their aboveboard usage in jewelry, the use of palladium in jewelry is more understated. It’s an industrial metal that’s mostly used in different manufacturing processes, which include electronics, medicine, chemical applications, and groundwater treatment.

Safe Havens

Safe haven is a type of investment that’s expected to retain or increase in value when the market is in a volatile state. In the event of a market turndown, an investor will seek out a safe haven in order to limit their exposure to loss.

Gold is the perfect example of a safe haven. For countless years, it’s been considered a store of value. Because it’s a physical commodity, and its value can’t be determined by the whims of a singular government, it serves as a good form of insurance in times of market turbulence. Investors can stockpile their money in gold and wait for the market to regain stability. The other precious metals may also serve as safe havens, depending on the specific nature of the market being traded in.

Portfolio Diversification

As a portfolio diversification tool, precious metals provide an attractive alternative to mainstream investments, such as equities and fixed interest. Diversifying your portfolio by investing into precious metals is a good idea as it’s a way of decreasing loss and risk, as well as keeping your overall investments stable.

Ways of doing such include:

  • Buying In Large And Small Quantities

This is where you engage in alternate purchasing in large or small quantities,   depending on your overall financial strategy. You can buy large quantities when you need a safe haven. Alternatively, you can liquidate your precious metal assets relatively quickly.

  • Invest In Various Forms Of The Precious Metal

Most precious metals, namely gold and silver, are available as bullion. Whilst the content and type of precious metal will always be at the forefront of consideration in terms of value, it should be noted that the form the precious metal comes in can influence its price and the premiums that are associated with it. Such, then, has an influence on demand of the item for investors and collectors.

For example, a basic bar of gold or silver has a high liquidity level, thereby increasing its value. A corresponding rare coin with the same content as the bar might not have the same value, and even has a decreased demand.

Methods Of Trading Precious Metals

The Role Of Precious Metals In An Investment Portfolio
Golden metal background. Macro
  • Commodity Exchange Traded Funds (ETFs)

ETFs are a liquid means of purchasing and selling gold, silver, or platinum. Investing in ETFs doesn’t give you access to the physical commodity, so you don’t have a claim on the metal in the fund. Like certificates, they remove transportation and storage out of your list of concerns.

  • Futures And Options

The futures and options market is open to investors interested in making big bets. It’s a high-risk area of the market where great gain and great loss can be made. This option isn’t for investors entering the precious metal market just to hedge their investment portfolios.

  • Bullion

Trading in physical precious metal is as straightforward as it sounds. In the process, you’re granted direct ownership titles. But, it should be noted that trading in coins and bars(bullion) is for those with the capacity to store them safely (safety deposit box, safe)

  • Certificates

Certificates give all the benefits of physical ownership without an investor having to worry about transportation and storage costs. However, in the event of an issuer default, investors of digital precious metals will possibly become unsecured creditors.

All avenues of investment come with their own positives and negatives, thus, your choice should only be made after thorough analysis.

In Conclusion

Precious metals are invaluable assets in an investment portfolio. Whether your intention is to hedge against inflation, a reaction to hunker down in the face of geopolitical tensions, or to base your whole financial strategy around them, you’re bound to end up a winner.

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