What Are the Benefits of Investing in Precious Metals?
Modern investors have numerous vehicles with which they may add needed portfolio diversification. The days of strictly investing in stocks and bonds are gone. With ever-changing economic and market dynamics, investors now more than ever need to examine some alternative asset classes. Some of the choices available include real estate, commodities, digital currencies and precious metals like gold and silver.
Precious metals should be at or near the top of the list, as these assets can provide numerous potential benefits. Adding these asset classes to your portfolio has never been easier than it is today. Metals can be purchased or traded in cash accounts and may also be eligible for inclusion in certain retirement accounts such as a self-directed IRA account making them an extremely versatile investment vehicle.
How Are Precious Metals Traded?
Metals like gold, silver, platinum and palladium are traded in cash markets as well as on various derivatives exchanges. For those looking to buy and hold physical metals, there are numerous online dealers as well as coin and bullion shops that offer a wide variety of bullion and coin products to choose from.
For those looking to take a more active trading approach that attempts to profit from price swings in the metals markets, exchange-listed futures contracts may potentially be a viable solution. Using such contracts, an investor can bet on prices rising or falling. Of course, such trading is not suitable for all investors as there is a significant risk of loss.
In addition to trading physical metals or derivatives, investors can also participate in these markets using numerous other vehicles. Mining stocks are one way to gain exposure to the sector. There are also lots of ETFs that look to track the prices of various metals.
Which Metals Are Traded?
Investors now have access to several precious metals for buy-and-hold strategies as well as for active trading. Some of the most popular include gold, silver, platinum and palladium. These metals all have unique chemical and physical properties, and can be used in a wide variety of industrial applications.
Gold is often viewed as the top metal for investment purposes, while silver is also highly popular. Unlike gold, which is primarily used for jewelry-making, silver has an enormous amount of industrial applications that may also affect its price. In fact, the number of uses for the white metal continues to expand rapidly.
Although trading volumes for other metals may be lighter, these metals are also gaining in popularity. Platinum is used in jewelry and is a major component of catalytic converters in cars. Palladium is also used in jewelry and even dentistry. With a growing amount of potential applications and little correlation to other asset classes, these metals are likely to become increasingly popular with investors.
Benefits of Trading Precious Metals
Trading of precious metals can come with a variety of potential benefits. For active traders looking to try to profit from changes in price, exchange-traded derivatives contracts can provide a vehicle with which to bet on the markets going up or down. Although these contracts can provide the potential for profit, however, they also carry a significant risk of loss. When trading such contracts, only risk capital should be used. For investors looking to take a more long-term approach, these metals can potentially provide numerous benefits. Some of the possible benefits of trading in precious metals include:
- Appreciation: Gold, silver and other metals have tremendous upside price appreciation potential. As a finite resource, there is no limit as to high how prices could possibly go.
- Inflation Hedge: Gold and other metals may act as an important hedge against inflationary pressures. It is thought that these metals may hold their value or even increase in value as inflationary pressures accelerate.
- Currency Hedge: It's no secret that the dollar has been losing value for decades. As the value of paper currencies declines, so does purchasing power. An allocation in metals may potentially provide a hedge against weaker fiat currencies.
- Geopolitics: Gold, silver and other hard assets are often bought during times of economic or political upheaval. With numerous potential powder kegs in the current geopolitical landscape, an allocation in metals might make a lot of sense.
- Diversification: Investors now more than ever need the ability to add diversity to their portfolios. With little to no correlation with stocks or bonds, the metals complex can potentially provide additional portfolio diversification.
Getting involved in precious metals trading has never been easier than it is today. It is important, however, to consider your goals and objectives beforehand. Based on your investment objectives, you can then make the best choice based on your time horizon and risk tolerance.