The Pros & Cons of Investing in Precious Metal

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Investing in Precious Metal

We all want to invest safely and for doing that we look for possible ways in which we can secure our investments. Therefore, investing in precious metal bullions always seems like a safe option. As an investor, you will probably want an investment that is free of risks.

However, finding any investment without risks is not possible. There are ways by which you can keep the risk at a minimum while investing in the volatile markets. High returns are not always possible as the economy is not stable all the times, so, protecting your assets should be your priority.

Safe Investments Techniques:

Techniques of investing in gold
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Hedging and safe havens are two out of the many risk-free investing strategies that you can use while investing. A hedge is such an asset that acts as a security in case of crisis. A hedge is an uncorrelated commodity with another asset on average, making it less risky. Whereas, a safe haven is an asset that is negatively correlated or uncorrelated with another asset only for a specified period. Like in case of falling stocks, investors usually keep their assets using these hedges and safe havens. In short, using hedging and safe havens, investors tend to keep the risks at a minimum.

Why is Gold a Safe Investment?

Since ancient times, people have been using precious metals, particularly gold and silver, as safe havens. Even in today’s economy, gold and silver are one of the most effective hedges against financial and political crisis and inflation. Unlike currencies whose values can vary as per the economic condition of the country, the values of gold and silver remain more stable. Due to this reason, it is wise to invest in gold and silver because the political governments don’t control their values. Many investors tend to invest in gold and silver when there is a risk of the market crash to safeguard their wealth.

 Reasons For Investing in Gold And Silver:

reasons for Investing in Gold And Silver
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Gold is trending as an investment these days. Investors are becoming interested in gold and silver due to the following reasons:

  • Gold and silver are relatively easy to buy, sell and keep. You can buy them physically in the form of jewelry, coins, bars or bullions here and keep them in your storage. Alternatively, you can invest in gold using the ETFs.
  • Roughly, 90% of gold demand is because of its intrinsic value. Therefore, if you invest in gold, it is safer because its intrinsic value is quite stable.
  • Investors can check the gold and silver content of the coins ad bullions while buying it.
  • You feel a sense of security as your investment is physically present with you.
  • Moreover, gold and silver have a potentially significant value. We all are conscious of the fact that gold is a symbol of wealth throughout the world. The Gold Reserve Act of 1934, is a current example from which you can determine the value of gold in today’s monetary world.
  • One of the prime reasons why investors prefer investing in gold and silver is their negative correlation with other assets like stocks and bonds. You can easily observe it in the history that whenever stocks and bonds are recessing the prices of gold rise. Even during the recent recession of 2007-2009, the S&P Index fell 36% whereas the amount of gold increased by 25%.

Advantages of Investing in Precious Metals:

Here are some of the advantages that you can avail by investing in gold and silver. Moreover, they are:

  • Always in Demand:

One of the main reasons for investing in gold and silver is that there’s a massive market for them. Therefore, if you want to sell them, you can easily do so as they are always in demand. If you invest with gold and silver your money is never bound because you can always sell them at hand. Gold jewelry and bars are like hot cash you can quickly sell them anytime you want.

  • Serves As a Safe Haven:

Another plus point of investing in gold and silver is that they serve as safe havens for investors in times of crash down. Gold and silver usually have a negative correlation with other investment assets like stocks and bonds. Due to this uncorrelation, it serves as one of the safer investments when you pair it up with stock or bond investments.

  • Serves As Insurance In Times Of Geopolitical Stress:

Sometimes, the political tensions between different countries directly affect the stock markets. At such times, investments in gold and silver pay off. Because gold and silver are one of these few assets that maintain their negative correlation at the time of such severe market stresses and hyperinflations.

  • Different Investment Exposures:

If you are opting for investing in gold, there are various ways by which you can do so. You can invest in physical gold, or by purchasing through Exchange-Traded Commodity, or you can buy shares of gold mining companies.

  • Investing In Gold And Silver Diversifies Your Investment:

It is always wise to invest your wealth in a diversified way. For instance, if you are investing in stocks, shares, and bonds, you should mix it. The best way of diversifying your investment is by investing in gold or silver as a side investment. It will help in keeping your investment safe in case of a loss in the market

⇒ Disadvantages of Investing in Precious Metals

Along with the numerous benefits of investing, there are always some risks involved. Below we are describing some of the disadvantages or risks involved in investing in gold or silver. So they are:

  • The Prices Can Be Volatile:

Like all other commodities, the prices of gold and silver can become volatile over time. Due to this, volatility investors can sometimes face loss.

  • It Doesn’t Generate Any Income Or Interests:

One of the most significant disadvantages of investing in metals is that they don’t produce any income or interest for you. To avail the profit, you need to sell the commodity itself.

  • There Are Risks Involved:

Investing in gold can be risky too. When the economy and markets are stable, the prices of gold falls as it is an asset that people invest in the time of crisis.

  • Value Of Silver Depends On The Market:

Silver prices tend to fall when there is less industrial demand of the metal. As silver majorly used in the industry; therefore, in low business periods, its price falls.

Conclusion

Investing in any commodity can be risky; therefore, it is wise to consider both highs and lows before investing. It is usually wise to use gold as a safe haven while investing because its intrinsic value is comparatively stable.

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