For many people, precious metals investing basically means investing in gold. There has been a great deal of excitement over this metal in recent years. It’s routinely broken records but, in 2013, the markets saw a reduction in the price of gold.
For those who thought of precious metals investing as the latest get rich quick scheme, this reduction in price was, no doubt, and unpleasant surprise. For investors who truly understand these markets, however, and how they can behave and how one can take advantage of that, this came as neither a surprise nor necessarily bad news.
Diversification and Gold
Precious metals investing is oftentimes undertaken as a diversification strategy. Gold, in particular, is prized by those who invest with this in mind. Gold has a price that tends to move contrary to the value of currency. This is why it’s associated with protection from inflation. If the value of the dollar declines, the price of gold will tend to increase, and that is one of the major reasons that people still choose gold for part of their portfolio that they dedicate to precious metals investing.
Gold is not the only metal out there, of course, and that means that investors have other ways that they can use precious metals investing and, further, that they can make the benefits of diversification even more significant. The other precious metals on the market tend to move up and down with one another, and with gold, but they also have uses that enable them to move quite independently of one another.
Silver, for instance, is another hugely popular option for precious metals investing. This metal is known for having volatile prices but also known for being indispensable to industry. It’s in high demand for practical uses, where gold is mostly in demand for financial purposes.
Precious metals investment might involve platinum or palladium, both industrial metals. It may even involve copper and very rare metals, such as rhodium, but these aren’t so much associated with the most popular metals investing strategies.
Where those diversification strategies are concerned, platinum, palladium, gold and silver all have enough different between them that most people can diversify their portion sufficiently by sticking to those four metals.
When the prices for gold and other precise metals were soaring, it made sense to many investors to buy a lot of metal and to sell it before the prices adjusted. Most of the time, however, investors try to limit their exposure by limiting their initial precious metals investment. Between 1 and 5 percent of a portfolio is usually sufficient to start.
Some investors are much more heavily committed to gold or other precious metals, but this isn’t how people usually start out with precious metals. They usually figure out a sensible percentage of them, invest that money and then use it to store wealth.
Another important factor about precious metals investment that investors have to consider is that it’s a stored wealth investment. You don’t get a dividend every year because you have silver stored in your safe, for instance. Your wealth is stored in a form that’s likely to increase in price over time but, even if currency loses value, is likely to retain its ability to fetch a good price.
This sort of diversification is a bit different from just spreading risk around. In this case, you’re not necessarily looking for the big payout every year, but are making sure that some of your wealth is protected against the tempers of the market. This is one of the main reason that gold remains so popular with today’s investors, in fact.