How to Optimize Your Portfolio Using Precious Metals
Despite being one of the oldest financial tools, precious metals are usually disregarded as an option for investment. However, many investors may see this underutilization of the precious commodity as an opportunity to diversify their portfolios. They benefit from the unique qualities that investing in precious metals has historically provided.
Precious Metals over the Years
A precise report indicates the compound growth of the value of precious metals from 1976 to 2004. The data may represent a moderate increase in performance, but the commodity saw a staggering growth in nominal terms.
According to the study, having precious metal commodities in a fraction of your portfolio significantly affected returns. The investment of $1 in 1976 from a portfolio comprised of 100% U.S. equities gave a return of $38. Whereas the investment of $1 through a portfolio that comprised of 25% precious metals equity along with 75% U.S. equities had a return of $65.
Our Initial Thought
This is how we see it. The best way for investors to appreciate the potential benefits of investing in precious metals is to think about precious metals as a different asset class from other commodities and investment options.
As we pointed out in the beginning—precious metals allocation has historically boosted the efficiency of a diversified stock-bond portfolio. They can also help investors manage their risk by providing appropriate diversification versus risky assets.
Precious metals can also be used as a hedge against market volatility and extreme events. This may aid in reducing performance deterioration during periods of market volatility.
Precious Metals—the Rise in Modern Market
The value of precious metal as a safe investment saw a hike post the financial crisis of the early 2000s (2001 & 2008). In this era, investors began to blend alternate investing options into their portfolio mix to minimize exposures to risk in their portfolios.
This was also the time when the price of gold saw a boost from US$276 to US$869, a whopping increase of 215%. The price rose by 7.5% in the first quarter of 2009—making the numbers hit $934.
Like the rest of the commodities, precious metals such as gold, silver, platinum, and palladium are global assets partly driven by fundamentals over the long run. Unlike commodities, however, they also tend to act like currencies.
Like the rest of the commodities, precious metals such as gold, silver, platinum, and palladium are long-term global investments influenced in part by fundamentals. However, unlike commodities, they tend to behave like currencies.
Furthermore, precious metals have a variety of demand drivers that distinguish price fluctuations at different stages of the market cycle. As a result, precious metals have generally had less susceptibility to other markets.
These diversifications, qualities, and risk management factors set precious metals apart from other market pieces and prove to be truly effective alternate investments for a distinct portfolio.
Types of Precious Metals to Invest in
The term precious metals refer to their rarity. They derive their value from their nature of being scarce. These minerals are produced in a limited amount each year.
The top three precious metals that are traded around the world are Gold, Silver, and Platinum.
Gold is the most well-known precious metal that is held in high regard around the world. The investment and selling of gold can be highly profitable if done in the right way. Statistically, gold is a $182 billion business with a projected annual growth rate of 9% until 2027.
Gold is a transition metal that is distinguished by its dazzling yellow color. Aside from its most well-known use in jewelry, it has a variety of other applications. Gold is a very efficient conductor, which brings it in demand for industrial consumers like pharmaceutical, dentistry, and electronic industries.
In 2020, gold for investment was the most popular demand sector, accounting for about 47% of worldwide gold demand.
Each year, 40% of gold output finds its way into investors’ and governments’ inventories or holdings worldwide. When there is a great demand for an investment, the price tends to climb. As part of their foreign exchange reserves, countries hold roughly 30% of all gold ever created in the world’s history.
Silver is another precious metal that has been around and held in value since the very beginning of the monetary system. Though high in value and investment, the production of silver is a secondary output in the extraction process of Gold.
Silver is made of copper, lead, and other metal elements. This precious metal also attracts investment opportunities and demand from all over the world.
The sparkly metal conductor has a range of uses in the industrial sector, being one of the top components used in the electronic industries.
Platinum is very rare in nature and might even sell at a higher rate than gold. The production of gold is accumulated to about 2,800 tons annually, whereas the production of platinum within the same timeframe is 250 tons.
Platinum is super heat resistant, for which it has a wide range of industrial uses. In addition, the metal serves as a precious metal that many people keep as an investment for selling when needed.
Precious metals may be an excellent addition to or hedge in an investor’s portfolio. They tend to mitigate the negative impact of inflation, so it is ideal to secure your retirement with gold and silver.
Furthermore, these three precious metals are distinct from other commodities as investment assets. While the prices of other raw commodities fluctuate in currency terms, precious metals frequently compete as assets against currencies.
So when there’s a time when the public pulls their trust from the government and paper currencies, the precious metals would go up at an exponential rate.
Learn How to Invest in Gold and Other Precious Metals
Now that we’ve told you everything there is to know about diversifying and optimizing your portfolio—you’re prepared to invest. However, you must seek help from a precious metals investment dealer.
Orion Metal Exchange is one of the most efficient and reliable gold investment companies—situated in Los Angeles for 50 years. With years of experience as American gold investors, we will guide you on the right path and help you put your money in the right place.