Consulting in Precious Metal Investment

Investment vehicles come and go, firing everyone’s enthusiasm for a few months or years then slipping out of fashion again. But there’s one that’s been a leading option for thousands of years – precious metal.

The oldest known coins were made from electrum, an alloy of gold, in Lydia, in what’s now Turkey, around 600 BC and silver has been mined for at least twice as long. Despite many changes in the legal status of precious metals, they’re just as popular today.

There are five precious metals of interest. The big two are gold and silver, which make up the bulk of the market. Then there are platinum, palladium and rhodium, collectively known as the platinum group. All of them are available in bars, such as the gold bar, and rounds, aimed at investors, as well as industrial forms like powder or wire. Gold and silver are also used for coins, and many of these are legal tender although their face value is usually a small fraction of what their metal content is worth – and, for more highly sought after ones, an even smaller fraction of what collectors will pay for the coin.

One thing you’ll cautionfor investment in precious metals is that their prices are volatile. Gold is most affected by the actions of large investors, including many central banks; the others are also heavily influenced by industrial demand. Precious metals don’t pay any interest and the price can fall sharply – despite that, there are some excellent reasons for recommending them in any portfolio:

  • They’re inflation-proof. Precious metals have a reputation for holding their value over time. While the price can rise or fall dramatically the asset itself is inherently valuable. If you own an ounce of gold you own an ounce of gold; it’s not going to shrink. High inflation devalues fiat currencies and makes tangible metals more attractive. The gold spot price also tends to rise along with living costs, giving another layer of inflation resistance.
  • They’re finite. More precious metals can be mined, but they can’t be created. The planet has a limited supply. That protects them against devaluation. As time passes the availability of new supplies is likely to fall, creating a steady long-term upward pressure.
  • They spread the risk. The key to a successful portfolio is diversification – spread your eggs among several baskets, ideally ones that complement each other. The pressures that drive paper investments down tend to drive metals up. In general they tend to rise when share prices are falling, and vice versa.
  • They’re safe. It’s noticeable that in times of uncertainty investors move to metals. They’ve been seen as a safe haven for centuries, with good reason. Currencies can collapse – the Zimbabwean dollar fell apart in 2008 and now has an official exchange rate of zero – but gold will always be gold. Even if the currency you bought it with no longer exists, you can sell it for another one.

While metals are volatile in the short term, over the longer term the trend is invariably upwards. Technology is always finding new uses for them, from electrical contacts to catalytic converters, while the demand for traditional uses rarely falls. That ensures healthy demand and upward pressure on prices. While the metal market has weak periods, like the current one, it’s a safe bet in the long term and most investment experts believe it’s a good idea to have a supply in your portfolio. Precious metals are an asset that’s stood the test of time and there’s no reason to think that’s going to change.

Clint Stelfox raises the gold bar in finance for Golden Eagle Coin and specializes in precious metal and coin collecting.