November 17th, 2020

Precious Metals Investing

Are they "Fools Gold" or do they retain real value?

So you’ve heard of investing in stocks, bonds, and real estate...but did you know you can invest in precious metals such as gold and silver? If you didn’t, you’re in luck!

When banks and money are perceived as unstable and/or political stability is questionable, or when real rates of return in the equity, bond, or real estate markets are negative, gold has often been sought out as a safe store of value.

Precious metals offer unique inflationary protection—they have intrinsic value, they carry no credit risk, and they cannot be inflated. That means you can't print more of them. They also offer genuine "upheaval insurance" against financial or political/military upheavals.

However, gold or other metals also have their shortfalls.  Prices for metals can drop due to technical imbalances (more sellers than buyers). That said, during times of economic uncertainty, sellers benefit, as prices tend to shoot up.

From an investment theory standpoint, precious metals also provide a low or negative correlation to other asset classes like stocks and bonds. This means even a small percentage of precious metals in a portfolio will reduce both volatility and risk.

A small niche of successful investors like Brent Johnson believe that it’s not on some people’s radars to invest in gold. He's also confident that gold is going to go much higher in the years ahead, at least $5,000, and potentially higher than that.

Okay, so dedicate 50% of your portfolio to gold to get rich quicker? Nope.

That would be quite extravagant when investing as little as 2-7% in precious metals could keep your portfolio balanced. The stock, real estate, and bond markets will continue to exist even if society were to go back to the gold standard, so it's important to not keep all of your eggs in one basket.

In the era of COVID-19, the U.S. Dollar has shown a lot of weakness and declined at warp speed. Because of this, precious metals are of interest now more than ever to some investors.

So how does one invest in gold or other precious metals?

For starters, there are three methods:

  1. Physical Gold and Silver Coins/Bullion
  2. Gold and Silver ETFs and Options
  3. Miners and Royalty/Streaming Companies

Whichever method you prefer, remember that gold is an ancient form of money, something that stores value over millennia by keeping up with inflation of fiat currencies (albeit with substantial volatility). Investing in precious metals is useful because they're a separate asset class from stocks and bonds and they're partially uncorrelated and have their own unique risks and opportunities.

Don't be a fool, consider diversifying your portfolio with precious metals. Precious Metals
TagsGoldSilverMining StocksPrecious MetalsInflation Monetary Policy Fiscal Policy Government StimulusStagflation