Are Precious Metals Considered a High-Risk Investment?

Investing in precious metals certainly comes with its risks, but no more than other investment options.

Smart investors look for investments that provide them with a stable portfolio. Precious metal investments in gold, silver, platinum, and palladium will help diversify your portfolio. This separation of types of investments balances your portfolio and risks.

Precious metals also maintain their worth more than other investments. The physical metals are used for automotive, medical, and technological purposes, keeping them in high demand globally.

Gold and silver are considered safe investment choices because of their historically solid performances during stock market fluctuations. However, gold prices typically do not increase with high-performing stock markets. Your investment return relies on gold’s appreciation. Therefore, many see precious metals as more of a short-term asset.

Like all investments, there are risks you should know. Your experience level, financial status, and long-term investment goals are factors for deciding where to invest. It’s wise to have a strong understanding of the advantages and disadvantages of investing in precious metals before making your decision.

Advantages of Precious Metal Investing

Diverse Portfolio

A well-balanced portfolio needs diversification. Precious metal values fluctuate based on supply and demand, and there has been a steady increase in both. Their prices do not correspond to stocks and bonds or other investments. Since they hold their value independently, precious metal investments can balance and protect your portfolio against assets that perform poorly or more inconsistently.

The value of all major currencies except for gold has decreased over the last ten years. Investing in a low-risk asset like precious metals is a smart way to steady your portfolio and safeguard yourself from future losses.

Inflation Protection

Investing in gold and silver is an excellent protection plan against inflation. The value of paper money has decreased significantly over the years. This decline will continue to happen as more money gets printed during unstable economic times.

When inflation looms, investors turn to precious metals. Gold has traditionally not lost its value as dramatically as paper money. As the dollar value goes down, gold’s value goes up. As more people gravitate toward purchasing precious metals, the worth of those metals only increases. This trend relieves the worries that investors may have about future inflation issues.

Private Investment

Many investors are attracted to precious metals for the privacy aspect. When physical metals get delivered to your home, it is entirely private. There is no need to involve any financial institutions if you don’t want to.

Possessing gold and silver means banks and the government will not be a part of your financial decisions. You are free to store, spend, and invest the metals as you see fit without added fees or monitoring.

Liquid Assets

Precious metals are some of the best liquid assets you can have. Purchasing gold and silver means you have the option of owning something tangible that has value. You can sell when needed without jumping through the same hoops to liquidate as you would have to with other investments.

Another selling point is that gold coins, bars, and bullion are acknowledged worldwide for their value. This global recognition ensures that you can sell or trade just about anywhere and anytime. This convenience is unique to precious metals and further proves that they are more valuable than cash and other assets.

Additionally, retirement and savings accounts can easily roll over into a gold IRA. Turning your funds into gold is a smart way to maintain the value of your assets. Over time, you may even see a significant return on your gold investment. This smooth transition to precious metals lets you and your family breathe easier after retirement.

Room for Growth

During economic hardships, gold does not get printed and handed out like cash. Because the supply of gold and other metals is finite, they will only increase in value. Throughout these uncertain times, miners have avoided digging in certain areas. Because of this decrease in the supply of precious metals, gold prices rise to match the demand.

Now is the time to purchase gold and silver because their prices are considerably low. There is a much bigger chance of a high return than other investments such as index funds and savings accounts. If left in storage, gold will not decline in value. It can be liquidated and used as currency in developed nations, serving as a helpful backup plan for emergencies. Paper money does not offer this kind of stability or profit. If the stock market crashes, you’ll be happy you invested in precious metals.

Disadvantages of Precious Metal Investing

pen pointing to the fluctuating price of precious metals

Fluctuating Price

Although precious metals provide balance to your portfolio, their prices often fluctuate. Supply and demand always play a role. The value of gold can go up and down drastically based on the mining supply of the area.

When you buy a house, you must also consider the neighborhood. Similarly, when you purchase metals, you should account for the region they come from and their geopolitical history. Their problems can negatively affect your assets.

Because the price of metal depends on market movement, your gold and silver can end up worth less than what you paid for it.

Security and Storage

When you buy stocks and bonds, there is no security risk. If you purchase coins, bars, or bullion, you face the possibility of theft. It is not practical or safe to store a large supply of gold at home.

High-security facilities such as Brinks Global Services or International Depository Services are the safest way to store your gold and silver. They offer quick, easy shipments of precious metals backed by a billion-dollar insurance policy. Of course, this safeguarding comes at a price. Investors should be aware of the costs they will encounter to store their metals before diving in and investing.

High Taxes

Unfortunately, if you decide to sell your precious metals, your profits may be subject to higher tax rates. The reason for this increase is that coins and bars are considered collectibles. Set aside extra money if you plan to sell your gold or silver anytime soon.

Fashion Trends

Similar to taxes, the collectible nature of precious metals can affect their value. Gold and silver coins and jewelry are susceptible to fashion trends. Their worth does not necessarily have anything to do with the material used to make them.

Because of their fashion status, metals can often trade at lower prices than you paid for them. In some cases, trading may not even be an option.

Low Liquidity

Selling your coins and bars can be a long, cumbersome process. Newly produced coins usually sell quickly, but collectibles will take longer to find a buyer. Often, sellers have to settle for an unexpected price drop.

Many investors purchase gold as a safeguard against market crashes or personal emergencies. The problem is that you aren’t permitted to sell a percentage of a gold bar. These restrictions present an issue if you need to tap into your precious metals during difficult times. When you need it the most, you may not get the return you were hoping to receive.  Again, you will have to sell the entire piece of metal at a lower cost.

Traditionally, you only see gold values increase when stocks and bonds decrease. On the plus side, fluctuation works both ways. The predictable performance of gold is why people point to it as a great indicator of how well the stock market is doing.

Exchange Rates

Although you can sell and trade precious metals anywhere in the world, their value only gets expressed in U.S. dollar amounts. When you purchase gold or silver with euros or another foreign form of currency, your investments will be subject to the difference in exchange rates.

Exchange rates are something to remember and consider if you are traveling or moving and plan to purchase precious metals in another country.

Required Experience

With most non-traditional investment choices, there is a learning curve to learning to invest in precious metals. Even the most experienced investor may have difficulties comprehending the ins and outs of investing in gold and silver. As mentioned above, many factors can affect precious metal prices when you buy, sell, or trade them.

Purchasing gold may be intimidating at first, especially when you think about all the options. Material, size, style, and even geography all play a part in how precious metals perform. Deciding how and where to store your coins, bars, and bullion can be confusing. Metals are quite different from cash and other low-yielding investments. Due to these attributes, it’s prudent to reach out to an investment specialist before jumping into the world of precious metals.

Learn More About Precious Metals

Overall, investing in precious metals is considered low-risk and a great addition to any portfolio. Like any investment, gold and silver assets come with a list of factors to consider before buying.

Are you still unsure if investing in precious metals is right for you? Do you need advice on which types of coins and bars you should buy? If so, contact the Oxford Gold Group today, and we will help you with all of your investment needs.

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