ON MONEY: Investing in precious metals | Characteristics
Often when I drive and listen to a satellite radio station, I hear advertisements touting the effectiveness of investing in gold or other precious metals. I must admit that my long-held view of precious metals as suitable long-term investments was that they were simply hedges against inflation and not quite suitable for the long term. However, I did some research and may need to change the setting slightly.
First a little background:
Gold is the most well-known precious metal and is not only used in jewelry and coins, but has a limited role as an element in the high-tech electronics industry. Gold is an efficient, chemically stable, non-corrosive conductor of electricity, and has excellent heat shield characteristics. Even so, the greatest demand for gold in 2016 (47.38%) came from the jewelry industry. Another 23.89% of global demand came from investors who are rightly concerned about the viability of paper currencies. Thus, since gold has little intrinsic value, it is at best a speculative investment, same for other precious metals.
There are other precious metals to invest in, such as silver, platinum, and palladium. As China’s economies have grown and developed, the demand for precious metals has increased.
Platinum is used in medical equipment, computers and some auto parts. Palladium is softer than platinum and is used in catalytic converters because it has superior anti-oxidation properties and the ability to withstand high temperatures.
You may not know that it took us 216 years to rack up $ 8.5 trillion in debt, but only 12 years of debauchery under Obama (and sadly the Trump administration) and six months under the Biden administration to manage this total. up to $ 28.5 trillion with no end in sight. The increase in this debt comes naturally from our ruthless lawmakers who continue to kick our children and grandchildren.
Escalating national debt, coupled with lingering fears about inflation, are two factors that may fuel increases in commodity prices. Second, holding precious metals as part of one’s investment portfolio has the potential to provide a hedge against future inflation. Since we live in an uncertain environment, buying metals could be a safe way to diversify a portfolio and also to hedge against a drop in stock prices. In my opinion, however, such investments should not exceed 5-10% of his portfolio.
How has gold and silver performed over the past 17 years compared to the S&P 500 stock average? Assuming dividends were reinvested during the period, the S&P 500 stock index generated an annualized rate of return of 11.73% between 1926 and last December. Gold and silver prices have risen dramatically this year (up about 10%), but if an investment in gold in 2000 was $ 284, that investment would have generated a rate of annualized return of 8.79%, while silver would have produced a rate of return of 6.73%. None of these calculations, however, took inflation into account.
If you decide to invest in precious metals, there are some options. First of all, you can just buy stocks or mutual funds that own shares of mining companies, like Barrick, the world’s largest producer of gold. You can also buy shares of ETFs that invest in precious metals such as SPDR Gold Trust (GLD), Silver Trust (SLV), Physical Platinum Shares (PPLT) or Physical Palladium Shares (PALL).
You could also buy the actual physical metals themselves, but those purchases would be classified as collectibles, so any long-term capital gain would be taxed at 28%.
My advice, do your research and discuss such investments with your financial advisor. Gold prices have risen faster than expected in recent years, and the spot price is now approaching $ 1,904 an ounce. Who knows what the upper limit may be?