With natural disasters, political turmoil, and conflicts in the Middle East and North Korea making recent headlines, it is important to think about the impact of all this uncertainty in different parts of the world on your investment portfolio. A recent article on Kiplinger’s website posits that investments in precious metals offer a hedge when the world around us becomes volatile.
Precious metals are stable because they have been used in trade throughout history – for hundreds, even thousands of years, people have assigned value to and used precious metals as money, therefore, the demand for gold and silver has always been strong. This demand is particularly strong during tumultuous times, as central banks around the globe increase their policy targets to hoard precious metals even more than normal, and, in addition to central banks, investors around the world like to place their money in assets that have intrinsic value when uncertainties abound. All this demand leads to higher values for gold and silver, which is a positive development for your portfolio when investing during tumultuous times such as the one in which we live.
If you are interested in allocating a portion of your portfolio to investing in gold and silver, as would be wise with the current flux in the global markets, Canadian companies like Guildhall Wealth Management offer clients a way to help protect their wealth and financial futures when there is uncertainty in different parts of the world. Ideally, you want a firm that has some repute (for instance, they didn’t just spring up last year), one that helps clients with the direct purchase of precious metals online (which is much easier than in-person purchase), and also provides secure depositories for storing your gold, silver, and diamond assets.
If you’re still unsure about whether to entertain the idea of investing in precious metals, another reason to consider holding gold or silver is diversification, as pointed out by a recent post on the Quicken Loans personal finance blog. Gold, in particular, is attractive as a diversifying asset in your portfolio, because it has been proven to be negatively correlated to directional movements in other asset classes, which means that having a portion of your portfolio in gold can help offset losses during a market correction.
During the recent global financial crisis, the value of gold gained on average 32% per year for the five-year period ending in 2013. At the same time, returns on equities, bonds, real estate, and hedge funds all experienced significant declines. Silver has the additional benefit of increasing in demand due to other market forces, because it is a major industrial component, therefore upticks in the demand for products using silver increases silver’s value.
Finally, precious metals are stable because they are often viewed as a hedge against inflation. When the value of the dollar goes down, gold and silver tend to go up – maintaining or increasing their value over time. Having this inflation hedge in your portfolio is a good way to protect against unforeseen events that might have an impact on the markets.