Precious metals have long been prized for their durability and lasting beauty. Every civilization from the beginning of recorded history has used them to represent wealth and divine power. Today’s marketplace is no different; millions of dollars worth in gold, silver and other precious metals are being bought and sold each year.
Because precious metals have retained their value for thousands of years, many investors have historically looked to them to protect their hard-earned wealth from the ravages of an unstable economy. These investments carry risks along with their benefits, however, which is why it’s important to learn about both before you invest.
Advantages
Inflation-Proof
Perhaps the main reason why investors buy precious metals during times of economic hardship is because they are “inflation-proof.” When government deficits skyrocket and the value of paper currency plummets from overprinting, investors move their wealth into gold and silver and drive the prices higher. Savvy investors try to predict when these events occur in order to profit from the resulting bull market.
Tangible
Another benefit to investing in precious metals is that they are tangible assets. Their value is based primarily on supply and demand, so when you buy gold and silver you own more than just an airy promise. Using these commodities to diversify your portfolio, then, can act as a hedge against losses from more volatile investments such as stocks and bonds.
Practical Applications
Precious metals are not only valuable to investors, however, but industries also use them for a variety of practical applications. Gold, for example, is both conductive and highly resistant to corrosion, which is why it is used for electronics. Silver is particularly useful, and can be found in everything from cutlery to dental fillings. In fact, the world’s silver supply cannot match the demand, which may lead to silver becoming more valuable in the future.
International Value
Lastly, precious metals share a high level of international liquidity. Nearly every country participates in the gold market, and most governments have a gold reserve. Silver is also recognized internationally as a valid currency. In fact, the word “silver” has long been synonymous with “money” in many different languages. In short, when you buy gold and silver you can trade it anywhere.
Diasadvantages
Volatile
While there are many benefits to investing in precious metals, it’s also important to consider the risks involved before making a purchase. First of all, the value of precious metals is pinned to the worth of other currencies. When the dollar is strong, for instance, the price of gold and silver drops significantly, which is why you must treat them as long-term investments if you want to benefit.
Bulky
Precious metals are also bulky and hard to transport. Silver especially suffers from this because its low price forces investors to buy a great quantity if they are making a sizable investment. Also, their tangibility makes them vulnerable to theft, and the cost of storing and transporting them safely can be prohibitive.
Investing in precious metals may not be for everyone, but they do offer a level of stability not found in today’s rollercoaster ride of a stock market. If you are interested in adding precious metals to your portfolio, there are many online resources available that will teach you how to buy gold and silver.
Brandi Tolleson is a freelance writer covering topics such as media, finance and technology.
