Investing in precious metals as a hedge against financial crises or worldwide changes has been a common strategy for several years, and for good reason! Global economy halting events such as the early 2000s dot-com bubble, the 2008 recession, and now the coronavirus pandemic has taught invaluable lessons to investors all over the world. It has been repeatedly recorded that when global stocks and equities plummet, gold and silver take flight. For example, during the worst of the financial crisis from October 2007 to October 2010, gold rose by 78.9%, while the S&P500 dived 20.6%. Similarly, at the beginning of COVID-19, when fear, uncertainty, and doubt (FUD) were through the roof, gold saw a 7.6% rise while stock markets all over the world plunged.
This blog explains how investing in precious metals is a prudent decision during global financial crises such as COVID-19. Before diving in, a few notes for precious metal investment newbies:
- Mostly, when talking about the global precious metal market, people refer to gold, silver, platinum, and palladium as their top favorite investment choices.
- Precious metals are usually a long-term investment.
- The best places to buy precious metals are authorized and trusted precious metals exchanges, where one can even buy gold online.
- Precious metals are available as billions in the form of coins, biscuits, and bricks.
- Precious metals (gold) have a proven track record of holding value and acting as inflation safeguards. Governments take corrective economic measures to tackle hyperinflation that adversely affects the value of stocks and cash.
Below are some of the many reasons why precious metals are a great investment option in today’s COVID economy:
Strong store of value
The value of precious metals such as gold and silver is primarily derived from physical attributes such as strength, no corrosion, unique color, and ornamental relevance. For millennia, gold has been seen as an asset that conserves wealth through generations. On top of that, scarcity of gold (and other precious metals) has qualified them to be used by all the world’s nations as a store of value. For individuals, this means a safe investment option that will give returns in all economies and eras.
Thanks to ever-increasing adoption as a store of value, ornamental uses, and industrial uses, the value of precious metals rises in the long term. If you are an investor willing to play the long shot and not give in to short-term FUD, investing in gold coins should likely be your strategy. For example, gold’s all-time high was not so long ago. On August 7, 2020, it was valued at $2,067 per ounce.
Less irregular fluctuations
Volatility is not welcome in the house of value. A good store of value does not go up and down wildly. This is because the numerous institutions and the commitments they make are based on a certain value, which, when altered, proves to be troublesome on many financial levels. With precious metals, this is mostly not the case. While the price does go up and down daily, in the long run, the trend line stays stable enough to make them a reliable store of value.
Hedge against currency devaluation
The modern-day economy is fickle, especially in the face of inevitable global driving forces such as a recession or a pandemic. When economies do not do well, their currencies suffer immediately, resulting in inflation. A fall in the buying power of a currency makes prices go up. So if an investor had invested in USD, the currency’s devaluation causes a decrease in the return.
Precious metals are a great way out of this trap. When prices rise due to inflation, government policies, and interest rates, the price of precious metals follows suit resulting in a proportional return on investment rather than a loss of value. Furthermore, the demand-induced value of gold also goes up in inflationary periods because many people exchange cash for gold in order to preserve the value of their assets.
Don’t put all your eggs in one basket, especially if you are investing your egg.
Veteran investors in any field, be it stocks, forex, or cryptocurrency, agree with this golden rule. Diversifying an investment portfolio acts as a safety net against fluctuations. Precious metals like gold are excellent portfolio diversification assets because they are mostly negatively proportional to the stock market. So if, for an unforeseen reason, the shining stocks in one’s portfolio all come crashing down one day, having invested in gold would save the day almost every time.
The benefits of investing in precious metals outweigh the pros of investing in options such as stocks and cryptocurrency, especially if you are a) new to the game or b) looking for guaranteed long-term returns. If you have read this blog so far, chances are you are serious about investing in precious metals and want to know how to invest in gold.
A trusted, authorized by NGC (Numismatic Guaranty Corporation) and PCGS (Professional Coin Grading Service), and well-rated precious metals exchange that I have been using to stock up gold and silver for more than a decade is Orion Metal Exchange. The exchange offers competitive prices, delivery of quality bullions, and a self-directed Individual Retirement Account (IRA) for precious metals.