Investments in precious metals have been amongst one of the oldest forms of investment known to man. It is one of the most stable forms of holding money. The value of precious metals like Gold and Silver have withstood the test of time as their attractiveness has never faded. The craze for precious metals has further increased over last few years as the global economic crisis and uncertainties have prompted investors to move to safer heavens, which is what exactly these precious metals are.
For the current generation, investing has never been tougher with stocks, bonds & real estate, all going down in tandem. With debt crisis choking the economy and currency losing its value, fund management is a tricky business. In this backdrop, outperformance of precious metals over the last few years looks even more stunning.
Precious metals like gold and silver are a good hedge against currency devaluation and inflation. Why is that? That is because in an inflationary scenario, the purchasing power of your $1 goes down, that is the amount of purchase you can do with $1, reduces. However, in case of precious metals, such declines in currency are offset by rise in precious metals prices, hence protecting the purchasing power. Infact, statistics reveal that all major currencies have lost significant value against gold over last decade. So, if one was holding his money in form of gold or silver, rather than say US Dollar, his purchasing power would have remained stable as against sharp decline in case of US Dollar.
Not necessary. The performance of precious metals and other asset classes differ in various stages of economic cycles. The current surge in Precious metals is due to flight to safety in the current uncertain economic environment. However, with onset of global recovery, precious metals may not remain the outperforming asset class and focus may shift to some other riskier assets. So, it's important to understand the economic environment when one would like to move between different asset classes. For someone, who is not blessed with deep understanding of economics and investing, a steady and systematic approach to investing in precious metals is important. Typically, one would like to allocate 5-15% of his portfolio to precious metals. It provides the portfolio much need stability against shocks in the global economies.
Gold is the most popular precious metal and attracts most of the investing interest. However, there are other options as well, like silver, platinum and palladium. While many associate precious metals with jewelry and ornaments, they are used extensively for industrial purposes as well. Hence, industrial demand-supply also has an impact on pricing of the precious metals.
So then, is investing in precious metals a good idea? The answer is yes. It provides your portfolio that much required safety against inflationary environment and yields stability in times of crisis. However, getting overboard with investments in precious metals, just like any other asset class, may not be prudent as well.