Last updated on September 23rd, 2021 at 05:10 pm
Every time a country or economy, or even when the whole world, is facing uncertainties and difficulties, the prices of precious metals tend to experience a sharp increase as investors shift their money into gold and other precious metals.
Crises that seem to threaten the economic stability or even the very existence of entire countries, such as capital flight, civil wars, and most recently pandemics, often drive up the prices of precious metals.
In 2020, all of the major precious metals experienced a consistent growth trend as observed by https://www.infinitycoins.com/products and other similar sites. Some market observers are expecting the same phenomenon this year.
They anticipate the prices of major precious metals to continue growing. Even though crude oil is usually given more media attention, analysts are expecting precious metals to be a more profitable asset this year among the commodities class.
Reasons for Precious Metal Investments
Below are some of the advantages of investing your funds in precious metals. Market analysts dissected the factors that contribute to the strength of precious metals that could keep their market prices go up this year. They also analyzed the weaknesses and vulnerabilities that could pressure their market prices to go down.
Here are some of the reasons to investing in precious metals this year:
1. Safe Haven of Investment, Protection from Inflation
One of the most important advantages of investing in precious metals is that they’re generally regarded as a safe haven of investment because of their intrinsic value. Precious metals draw their intrinsic value from the fact that the precious metals themselves are worth something. Another source of value for precious metals is that each piece of metal, whether it’s gold or silver or something else is a unique piece; hence, it can be traded, exchanged, or used as payment.
There are various types of precious metals but the most popularly known based on their value are gold, silver, platinum, and palladium. Investing in precious metals also tends to make your portfolio less volatile by diversifying it.
When states, economies, and societies go through crisis or turbulent times, many investors shift a sizeable portion of their asset portfolio to precious metals. The reason for this is that precious metals are generally considered safe havens of investment.
During a crisis, one of the first things that happen is that inflation goes up and the value of most other assets crashes. When this happens, investors shift their money into precious metals because these assets aren’t easily or immediately affected by inflation.
Precious metals are considered a safe haven for investment because they can’t be inflated. This means that, unlike paper money, governments can’t print more precious metals. When they print more money, the paper bill you hold loses its value. They can’t do the same with precious metals.
2. Continuous Growth of Industrial Demand for Precious Metals
Another one of the perks of investing in precious metals is that they have value for industrial applications. Take gold, for example. Gold is durable as it doesn’t corrode or rust, it’s also malleable and is a good conductor of heat and electricity.
These are just some of the properties of gold. Gold is also used as a base when making jewelry and forming currency, some of the industrial applications of gold are in electronics and dentistry.
The price-performance of silver in the previous year can be traced in part to its industrial uses in the solar power industry. Silver is used as an essential material in the manufacture of photovoltaic cells for solar panels. As countries shift to renewable energy sources, demand for solar power will continue to grow. This would translate into higher demand for silver as a raw material, which will drive the price of silver higher.
Aside from solar panels, silver is also a raw material in the production of cables, chips, and other tech equipment; all of which are in high demand. Due in large part to its many uses in emerging and booming industries; some analysts are saying that silver will likely repeat its performance last year and become the best-performing precious metal again this year 2021.
Other precious metals are palladium and platinum. Palladium is used as a raw material for parts of internal combustion engines, which are a core component of the automobile manufacturing industry. Aside from this, both palladium and platinum are also used in making fuel cells for electric vehicles. Other uses of palladium are in manufacturing laptops and smartphones, which require huge amounts of this element. Analysts see continued demand for palladium in 2021.
Platinum is a precious metal that is traditionally used in the production of diesel engines. But even with the growing demand for electric vehicles, platinum will still be in demand since it’s also used in manufacturing parts of hydrogen fuel cells which are an essential component of electric vehicles. Aside from its use in the electric vehicle industry, platinum is also used as a raw material in making parts of hard disks, optical fiber, and as a catalyst in the chemical industry.
3. Strong 2020 Price Performance Seen to Continue in 2021
Even before the pandemic resulted in the stock market crash last year, and the shift of investors to gold and other precious metals, the price of gold has been increasing in value for the past five consecutive years.
In the past year, the price of gold increased from between 24% to almost 30% compared to the year previous to that. The price of gold opened at USD$1,521 on January 02, 2020, and it closed on December 31, 2020, at the price of USD$1,895. This is the best year-on-year price increase for gold since 2010. Analysts forecast that the strong price performance of precious metals last year would continue in the present year 2021.
Even though the pandemic is already being reined in and well-managed in some parts of the world, and some places are already going back to near normal public health situations, analysts still expect that the price of gold will continue to grow in 2021.
But some analysts are saying that most of the market indicators are pointing to a price consolidation for the gold in the short run before the price makes another drive upwards as the year 2021 draws to a close, and into the following year 2022. There are even globally recognized finance entities that forecast the gold price to reach as high as USD$2,500 before the end of 2021. This could happen if bond yields fall and inflation continues to rise by the middle of the year.
How To Invest in Precious Metals
Contrary to the notions of a lot of people that it’s very difficult to find a way to invest in precious metals because of the inconvenience and barriers to entry for new investors, there are now quite a number of ways to invest in precious metals such as gold, silver, palladium, and platinum. You don’t even have to buy and physically store large quantities of the metals themselves. There are even digital apps that allow you to place your investments with just a few taps on your touchscreen.
Below are some of the ways you can invest in precious metals:
1. Exchange-Traded Funds (ETFs) For Commodities
One popular way of investing in precious metals would be through exchange-traded funds. Gold, silver, and platinum are often among the precious metals included in most ETFs. This is a convenient way to buy and sell precious metals.
The thing with ETFs, though, is that the investor doesn’t really gain access to the physical item or commodity. You as the investor don’t really acquire a claim to the physical metal represented in the fund. When you invest in gold and silver in an ETF, for instance, you won’t be entitled to having the real gold bar and silver coin delivered to your home.
2. Mutual Funds and Common Stocks
The other way you can invest in precious metals is by purchasing the shares of companies engaged in mining precious metals. Their share prices are often leveraged against the price movements of precious metals which they publicly disclosed to be part of their mining operations. But it might be more advisable to have these investments handled by fund managers with strong performance records of raking profits from metals.
Readout more about Mutual funds on Financegab
3. Futures and Options
Another way you can invest in precious metals is by putting your money in futures and options. These markets give leverage and liquidity to investors who want to place sizeable positions in metals. Numerous traders gained enormous profits and incurred their largest losses in these derivatives.
For those who want to hold and hide physical metals such as gold bars and silver coins, they should have a place where they can put these precious items such as a safety deposit box or a vault in a secure place somewhere. People who are expecting the worst such as those in a country on the verge of chaos or anarchy or those in economies which are about to collapse irreversibly, oftentimes these investors place some of their money in bullion. But this kind of investment in physical assets is illiquid and quite very inconvenient.
Owners of gold bars and silver coins who don’t have a large vault where they can physically hide precious metals, often have to content themselves withholding certificates of ownership. The items are then physically stored in secure locations such as secret vaults and buildings maintained by banks.
The disadvantage is that certificates are just pieces of paper. And if the country where the precious metals are stored spirals into permanent chaos or total disasters such as a lengthy civil war or political disintegration, these investors have nothing but paper as proof of their investments. If the successor governments don’t recognize their certificates, they lose their gold or their shirts, or everything.
6. Metal Coin’s Worth
For investors who are still skeptical about the possible return to pre-pandemic market stability, investing in precious metals is one of their most viable options. Precious metals are still safe havens of investment because they’re less volatile, they have intrinsic value, they’re not subject to credit risk and they’re not vulnerable to inflation. During uncertain times, metal coins have more worth than paper money.