18 May, 2011

Pros of Investing in Precious Metals

Precious metals behave differently than other asset classes. Some, like silver, have significant industrial uses, and are prone to substantial speculative gyrations in price. Others, like platinum, are in such low supply that few consider it an investment. Gold is held in massive amounts by central banks around the world -- according to the U.S. Mint, Fort Knox holds 143.7 million ounces of that metal. Investors tend to see gold as protection against currency fluctuations, particularly for depreciation.

Depreciation Protection
Gold is no longer directly linked against any major world currency, but it still acts as a store of purchasing power. Gold is widely traded around the world, making it highly liquid. If you need to buy or sell, you will find someone else on the market to trade it. When central banks weaken the currencies that they manage -- either to improve the exports of the country, deal with debt problems, finance a war, or something else -- gold tends to perform well. The amount of currency in circulation will increase, but the amount of gold in the world remains relatively constant. People can purchase gold while the currency weakens and then sell it later once it stabilizes -- or hold it for the long term.

Not a Liability
Precious metals simply exist -- they're not a liability toward an individual, bank, corporation, or government. Companies can go bankrupt. Governments can default on their debts. Precious metals just sit there and sparkle. At first thought, this may not seem like a major advantage, but it is. Companies -- even major companies -- fail often. The fact that some of your portfolio, if invested in precious metals, will typically maintain its worth, can be comforting. Just about any other asset type can crash in value to zero.

International Liquidity
Marketing shares held in foreign companies to a domestic market can be difficult. You can be left holding foreign currencies that have depreciated significantly and have trouble selling. With precious metals, however, no matter where you are in the world, someone will be willing to purchase it. If you hold physical metal, this can also be an advantage. Transferring your money from one banking system to another can be a tremendous cause of stress. If, for example, you were a Chilean immigrant to America during the rule of Salvador Allende, if you had carried your wealth in gold, you would have still maintained your savings. If you had your savings in Chilean banks or in a business, it may have been seized.

Thanks to ehow

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