Risks and Rewards of Investing in Gold and Silver
There are no risk-free or perfect investments. Even the best investments – including precious metals investing – bear certain risks to go along with their rewards.
We want to ensure that you are embarking on your journey with precious metals with your eyes open. So, this guide illustrates both the risks and rewards associated with making gold and silver part of your investment portfolio.
Risks
Let’s start with the bad news first. There are several concerns that come with precious metals investing. In the end, you’ll have to decide how to react and adjust to these risks as they come along.
Market volatility
The first and most obvious risk to your gold and silver investment is that the value of the investment may decrease due to market pressures. Precious metals do vary inversely with the economy, but not perfectly.
In other words, the fact that the economy is doing poorly and/or the dollar is weak are good signs that your metal may appreciate, but it’s not always the case. There can be other issues, such as the supply of gold and silver and/or political pressures on the trading of them that can adversely affect the overall performance of your investment.
Storage and security
Precious metals investors are confronted with a somewhat unique challenge, in that they must take steps to safeguard their investments physically. It is exceptionally ill-advised to keep gold and silver in common or unsecured locations, as they are both prime targets for thieves.
In order to fight against this risk, investors must therefore place their metals in some sort of secure facility or repository. It is possible to put small amounts in a home safe, but the truth is that any investments of size require the professional touch of a safety deposit box at a bank or, ideally, a secure storage facility. In either case, there is an added cost to the investment, to say nothing of the risk of a security breach or failure affecting your metals even after you make arrangements to store them.
Authenticity
Finally, your gold and silver transactions on both sides of the deal – buying and selling – are at risk from predatory dealers and other nefarious characters who may look to rip you off. Because gold and silver come with complexities and details that may elude you, you are vulnerable in the same way you might be vulnerable to a shady mechanic.
At the end of the day, you’re having to trust that your chosen dealer, either online or in-person, is a reputable and honest broker. You also have to take steps to educate yourself about the exact nature of your holdings, and keep abreast of the market so that you know what their value is. It is even necessary that you understand the entire precious metals sales process, from spot prices to premiums, so that you can spot any potential pitfalls. In the end, some people might not want to bother with that kind of preparation.
Rewards
Of course, it’s not all bad when you’re investing in precious metals. In fact, there are several benefits that you can realize if you put some money behind gold and silver.
Unlike the risks associated with investing in gold or silver, the biggest rewards are facets of investor prudence. In other words, though there are many different positives associated with investing in precious metals, they are mostly centered around the fact that having gold and silver as part of your investment portfolio just makes a lot of sense.
Long-term value
The first benefit of an investment in gold or silver is the fact that these two metals have been a store of value for thousands of years. There is no reason to suspect that they won’t hold value at any point in the future.
Now that fiat currency – the dollar, for instance – is no longer tied to the gold standard or pegged to any other tangible object, its value is mostly a function of its relationship to other currencies. It is extremely susceptible to the whims of geopolitical changes, economic oscillations, and other macroeconomic events that are far beyond your control.
Gold, silver, and their other precious metal brethren, however, are still worth – at the very least – the intrinsic value of their metal content. In fact, due to the movements of fiat currency relative to the stability of precious metals, you may well find that your portfolio value grows without any additional action on your part.
Inflationary hedge
As you’ve probably gathered from the rest of this page, gold and silver tend to vary inversely with the dollar and other forms of fiat currency. Generally speaking, as the value of the dollar decreases, the value of gold and silver increases, and vice versa.
Inflation is the dilution of the money supply by the addition of more currency into the system. Thus, the value of the dollar or any other fiat currency always goes down when inflation is present. Every dollar bill that is printed devalues all of the others already in circulation, including those in your wallet.
Because gold and silver are the value that they are, therefore, they are an excellent way to preserve the intrinsic value of your finances. They can stand against the tide of rising inflation due to the fact that their value – in terms of fiat currency – usually increases in times of high inflation.
Diversification
Dovetailing with precious metals as hedges against inflation is the fact that they are, therefore, a way to diversify your investment portfolio. The easiest way to guard against the whims of the market is to make sure that you have your eggs in many baskets, including precious metals.
So, you should own those stocks or those mutual funds. You should invest in certificates of deposit or treasury bills. You should even have some money stuffed under the mattress.
However, you should also have some gold or silver. You should have them for the same reason you eat a balanced diet – it is a sure path to health.
