In periods of economic uncertainty, such as the present time, it is particularly difficult for investors to know where to put their money. How is anyone to know which asset class will be the next to peak in performance, or to crash? In this kind of environment, precious metals have generally offered investors a means of protecting their wealth with comparative safety.
Currently, the US economy is showing a certain degree of recovery, albeit sluggish and patchy. However, there are always fears that efforts to stimulate the economy will actually prove too successful, and cause inflation to take off again. This will speed up the slide in the value of the US dollar, which is already evident.
Meanwhile, the global economic news is increasingly dismal, as Europe’s debt problems continue to hit demand for imported goods, and anxiety about the Eurozone affects economic activity elsewhere. At the same time, growth is slowing in the newer powerhouses of the world economy, like India and China, and earlier hopes are fading that these countries would bail out the Eurozone countries by buying their goods. In addition, the political climate across the whole of the Middle East is volatile and fluid, with the Arab Spring still raging.
This global uncertainty leads many experts to believe that the stock markets are currently overvalued, and are at risk of a correction similar to those seen, for example, in 2000 and 2008. This also applies to the mutual funds which invest in those markets. In this situation, it is highly advisable for stock market investors to look at balancing their market risk with precious metals, including gold and silver. This means real gold and silver, not stocks, which are just as vulnerable to market risk as any other stocks.
There are many reasons why gold in particular is a popular investment at times of economic uncertainty. It is seen as a reliable hedge against inflation, and moves inversely to the US dollar, so usually rises when the dollar falls. The physical product is seen as having real intrinsic value, not just the notional value of currencies, stocks or other financial products. Silver at the moment is also becoming very popular as an investment, as its value usually tracks that of gold, but it costs considerably less.
Investing in physical gold or silver can take different forms, including bullion (the raw product), bars, or coins. Bars are the most common form, and must consist of at least 99.5 percent pure bullion. Most bars weigh 400 Troy ounces, though you can get smaller ones, down to just one standard ounce. The most popular way to own them is as coins, which are the most portable form, and safest for storing. Coins are a very easy way for you to get started as a beginning investor, as you can buy single coins one at a time, and the other advantage is their liquidity, meaning they are much easier to trade.
An alternative to holding the physical product is buying ETFs or Exchange Traded Funds, whereby you hold shares in the physical stocks held in an exchange country. Your shares are fully backed with the physical product, although you don’t take possession of it. Your share prices should track the market price closely, so you are fully exposed to the performance of gold or silver.
Your other options are to purchase certificates in allocated or unallocated gold. If unallocated, you do not have ownership of actual bullion, but just of a designated quantity, and basically take the same risk as if you owned stock. However, if you buy allocated bullion, you have all the security of owning the physical product, without the storage problems, and you can trade it at any time.
As well as these markets, many experts consider it a good idea to invest in a wide range of other commodities, as prices seem set to soar. There was a recent major sell-off by institutional investors in the earlier risk-averse climate, but these funds are now coming back into the market. In addition, there is strong demand for these commodities from emerging markets such as China and India. Commodities can be hard, including oil, gas, nickel and copper, or soft, such as grains, coffee, sugar and cattle. They are traded on commodities exchanges, such as the Chicago Board of Trade for soft commodities. ETFs are always a good way to get exposure to these markets.
In the current uncertain environment, it is natural to look for investment strategies which will best preserve your wealth, and precious metals and other commodities have always been seen as among the most dependable of these. Unlike paper investments such as currencies, stocks and bonds, they actually have genuine intrinsic value, and at the same time have proved to be unbeatable trading vehicles. However, as with any investment, take careful advice, and limit them to a maximum of 20 percent of your portfolio.