Precious metals are rare commodities that investors have long valued. Historically they were used as the basis of money, but today they are traded mainly as a portfolio diversifier and as a protection against inflation. Commodities are a distinct asset class, with yields that are largely independent of stock and bond yields. Therefore, adding broad exposure to commodities can help diversify a portfolio of stocks and bonds, which could reduce the risk of an overall portfolio and boost yields.
Given their impact on consumer goods prices, commodities can also provide a hedge against inflation. However, investing in gold and other precious metals, and particularly physical precious metals, carries a risk, including the risk of loss. While gold is often seen as a safe haven investment, gold and other metals are not immune to falling prices. Know the risks associated with trading these types of products.
Metals prices may fall due to technical imbalances (more sellers than buyers), changes in supply and demand, geopolitical problems and other related factors. Today, futures and options contracts can be traded on exchanges around the world in a wide variety of agricultural products, metals, energy products and soft commodities. Unlike gold, the price of silver fluctuates between its perceived role as a store of value and its role as an industrial metal. This material has been circulated for informational purposes only and should not be considered investment advice or a recommendation for any particular investment product, strategy or security.
So if you're just starting out with precious metals, keep reading to learn more about how they work and how you can invest in them. These may include climate, which affects natural gas and grain prices, geopolitical instability, which influences crude oil, or mining strikes, which affect metals. Investing in precious metals has some benefits compared to investing in stocks, such as being a hedge against inflation, having intrinsic value, having no credit risk, having a high level of liquidity, bringing diversity to a portfolio and making it easier to buy. Investors should consider that all of these factors serve to make platinum the most volatile of all precious metals.
But investing in physical metal can be very attractive for some investors looking to diversify their investment portfolios. From an investment theory standpoint, precious metals also provide a low or negative correlation with other asset classes, such as stocks and bonds. Between account opening fees, fees that can reach 15 percent or more of your investment (including any leveraged portion), storage fees, management fees, and ongoing loan interest for the leveraged portion of the purchase of precious metals, it can be difficult to earn money with investments in physical precious metals. Pure palladium is malleable, but it becomes stronger and harder when someone works with the metal at room temperature.
This means that even a small percentage of precious metals in a portfolio will reduce both volatility and risk. Commodities include agricultural products such as wheat and livestock, energy products such as oil and natural gas, and metals such as gold, silver and aluminum. Most of the world's supply of this rare metal, which has atomic number 46 on the periodic table of elements, comes from mines located in the United States, Russia, South Africa, Zimbabwe, Canada, Australia and Finland. As investment vehicles that represent a safe haven approach to diversification, precious metals such as gold and silver are tangible, portable and highly liquid commodities.