A coworker asked me if I knew why investing in precious metals would be a good investment, what they are, and how they can help protect against inflation. We’re talking about actual, physical gold and silver bullion. I told him no, not necessarily. I was not aware of the importance of them, let alone owned any.
He then told me what uses silver had, such as cars, socks, and other objects we use daily. We use them in all kinds of different ways, which explains one of the reasons why precious metals are one of the best investment opportunities. He also asked what did the wise men bring to Jesus? I quickly realized one of the items they brought was gold.
Precious metals have played a role in money for a long time. There are several precious metals. Gold, Silver, Platinum, and Palladium are the main ones bought for investing. Gold and silver are the most popular.
What else makes them valuable?
Besides being seen as money for a long time, I also realized it’s an actual tangible material. You can melt it and create other objects with it. When you think about it, it would no longer exist if you were to put fire to fiat paper money. If you were to set fire to precious metals, they would melt, but the material is still usable.
Gold is a very durable precious metal. It is known to be nearly indestructible. Industries such as jewelry, dentistry, and electronics such as computers and cell phones use gold.
Silver is a valuable industrial metal because it has many different uses. From socks and jewelry to automotive car parts and solar panels. Silver is also highly conductive and reflective.
Platinum is useful in automotive, medicine, paint, electronics, and jewelry, to name a few. It is also harder to mine than other precious metals.
Palladium is also valuable for electronics, jewelry, and medicine. This rare metal also has practical uses as well in other industries.
The use case of precious metals adds to their value since there is a real need for them in many ways, especially in industrial applications. When you hold this material, realize others can use this material to create other objects for industries such as automotive and dentistry. That is neat.
More Information:
Anne Marie Helmenstine, Ph.D., explains precious metals in more detail about their properties and use cases.
How do precious metals and inflation go hand in hand?
Precious metals meet the six principles of money:
They are durable and can handle a lot, including high temperatures and corrosion.
You can divide them into bigger and smaller units.
They are uniform. One Troy ounce of metal has the same value as another Troy unit.
Precious metals are portable and easy to carry.
There is a limited available supply.
They are accepted as money around the world.
They meet the requirements of money. Whether a little or a lot, it is a great place to store your wealth to hold its value; hence, why investing in precious metals is one of the best investment opportunities.
As inflation climbs, precious metals like gold, silver, and platinum will also climb. The less valuable fiat becomes, the more fiat it will take to buy precious metals. We discuss what causes inflation here, What You Need to Know About Inflation, and Why You Should Care. Understanding what inflation is and what is causing it to rise helps you see why investing in precious metals like gold, silver, and platinum is worthwhile.
Precious metals have a limited supply, which shows why they are among the best investments. On the other hand, fiat is inflatable and does not have a limited supply. It will purchase less as time goes on. Inflating fiat will make products, like groceries, more expensive.
Greg Mannarino is very knowledgeable and makes understanding what’s going on behind fiat and inflation easy to grasp and why precious metals are valuable, essential to own, and one of the best investment opportunities. His favorite asset to protect against inflation is silver. Many people who invest in metals wonder why they have barely gone up in price after investing in them. Greg touches on that in this video:
Are there examples of fiat becoming devalued and precious metals remaining stable?
Yes, there is. I will give you a few of them:
The Ancient China Dynasty
The Tang Dynasty created paper money in 618 A.D., known as the jiaozi. It was government-backed and was known as a medium of exchange. The two dynasties after that also used fiat. One of them being the Yuan Dynasty. They issued a currency called the chao in the year 1271 A.D. Initially, the jiaozi was backed by the promise to be redeemable for copper coins.
The government needed more funds to upkeep its giant empire. So, they resulted in creating more money than there were copper coins. Because of this, the value of the chao went down significantly since the government could no longer redeem the chao for copper coins.
The chao was rejected by individuals and merchants. They accepted other currency forms, eventually converting back to commodity-based currencies such as copper coins and silver ingots.
Weimar Republic
In 1922, the Weimar Republic in Germany experienced hyperinflation. After World War 1, they had debts and reparations that needed to be paid as part of a treaty. To do this, they resulted in printing more money. In 1922, the Weimar Republic in Germany experienced hyperinflation. After World War 1, they had debts and reparations that needed to be paid as part of the Treaty of Versailles. To do this, they resulted in printing more money.
Creating more money led to a decline in the value of the German Mark. The fast decline led to the rise of goods and services. People’s wages also couldn’t keep up. One U.S. dollar was around the same as 64 marks in 1921. At the height of this hyperinflation period, it took 4.2 trillion German Marks to equal One U.S. dollar at the end of the year in 1923.
Since gold and silver were known as a currency worldwide, people purchased them during this time to hedge against inflation and preserve wealth. They rose in value compared to the German Mark losing value.
The Global Financial Crisis of 2008
When the housing bubble burst in the U.S., causing the financial crisis and affecting other countries worldwide, the central banks resorted to printing and creating more money. The central banks and governments were implementing monetary policy, which includes printing money, for a few reasons:
They wanted to add more liquidity into the system since the crisis caused a liquidity shortage.
They also wanted to revitalize economic growth in the economy and prevent deflation.
Not to mention the banks, including major ones, were on the verge of collapse.
There is more to it regarding the Global Financial Crisis of 2008, but for now, we understand that prices have indeed risen quite a bit since 2008. They were rising before then, but it sped up during this time.
Precious metals played a role during this time of financial uncertainty as well. Initially, their value dipped due to the liquidity crisis, but as investors were seeking to protect their portfolios in case of an economic downturn, they invested in metals like gold and silver, and the precious metals rebounded. Gold, silver, and other metals did well during this economic crisis.
What physical forms can you buy precious metals in?
There are quite a few physical forms in which you can buy precious metals:
Coins
These precious metal coins have a legal tender value since they are government issued. The coin’s actual value, though, is based on its amount of metal, not its face value. The Gold American Eagle is a gold coin with a face value of $50, but it’s worth more than that.
Bars and Ingots
These bars and ingots come in different sizes and weights. They are usually rectangular and of high purity, containing 99.99% pure precious metal, and are valued based on their metal content. Sometimes the size, weight, and other relevant information will be inscribed on them.
Rounds
Rounds differ from coins in that the government does not issue them as a currency and are privately minted. Coins have a legal tender face value, while rounds do not. They have unique designs on them, such as the Buffalo silver round, but are still made of precious metal. They are valued for the amount of metal they contain.
Numismatic Coins
These are the coins that numismatists(collectors) collect. They are more valued for their historical relation, aesthetic appeal, age(date), rarity, and demand. The premiums of these coins can sell a bit higher or moderately higher than their intrinsic value. The Morgan Silver Dollar is an example of a numismatic coin.
Jewelry
Gold, silver, and platinum are the primary metals used in jewelry. This form of metal is not necessarily priced for the content of the metal in it. It is priced based on craftsmanship, brand, design, and demand in the market.
More Detail:
Intrinsic value is the value of a coin based only on the metal it contains.
The Premium, in the case of numismatic coins, is the price someone is willing to pay on top of the coin’s intrinsic value.
What form of precious metal should you invest in?
Suppose you are just starting in precious metals. In that case, the gold and silver American Eagle and the gold and silver Canadian Maple Leaf bullion coins are good places to start, as they are very popular due to several factors:
Government-issued: Since they are government issued, they have backing regarding the quality of the metal.
Designs are Recognizable: The American Eagle and the Canadian Maple Leaf design is highly recognizable.
High Purity: They contain high-purity metals. The Gold American Eagle has a purity level of 91.67%, while the Gold Canadian Maple Leaf has a level of 99.99%. The Silver American Eagle has a Purity level of 99.9%, and the Silver Canadian Maple Leaf has a level of 99.99%
Internationally Recognized: They are traded and recognized around the world. Their recognition makes it easier for them to trade globally. It adds to their liquidity in the precious metals market.
The other neat thing, too, is the American Eagle and the Canadian Maple Leaf can become numismatic coins, but this depends on quite a few factors.
Bars, ingots, and rounds are suitable beginner investments as well. Rounds usually have cheaper premiums above the spot price than bullion coins because they do not have government backing. Rounds are also usually cheaper to produce. Large bars and ingots can be cost-effective since buying large quantities can lower the premium.
More Detail:
Spot price: This is the actual value of the metal itself. It doesn’t include the premium price. The weight and pricing of the metal content are typically expressed in Troy ounces.
Troy ounces: This is specifically used to weigh precious metals. It differs from the everyday ounce we use, the avoirdupois ounce. The Troy ounce is slightly heavier than our regular ounce.
Premium: In the case of coins, bars, and ingots, is the extra cost on top of a precious metal’s spot price. The premium includes production costs, dealer mark-ups, government backing, and reputation.
Are precious metals affordable?
That depends on which metal you are looking to get. Gold, platinum, and palladium prices may be or feel out of reach for some people, but there is one affordable precious metal.
Silver is still affordable and a great place to stash your cash. It also has the potential to outperform gold due to its gold and silver ratio and industrial uses. And the industrial use of silver continues to grow as we speak.
So, the great news is one of the metals that seek to outperform gold when it comes to the return on your investment is cheap. In my view, silver is among the best and top precious metals to invest in during this time of inflation.
You could purchase silver coins, silver bars, and ingots, as well as silver rounds. Silver coins are what I would personally shoot for when starting due to the reasons stated above.
The Silver Canadian Maple coin is usually slightly less in price when compared to the Silver American Eagle coin. You would get a little more silver for the money. They both have the same amount of silver.
The cost difference comes down to factors such as production and minting cost, demand, and design. So, you can buy the Silver Canadian Maple if you want to save a bit, and it’s still just as valuable.
What about the stock market and mutual funds when it comes to precious metals?
You can put precious metal stocks and mutual funds in your investment portfolio. Still, it is an indirect way of investing in precious metals. They allow you to get exposure to the performance of the precious metals industry.
Precious Metal mutual funds are a pool of different stocks of companies. These companies are involved in sectors of precious metals markets, such as production, storage, mining, or distribution of precious metals.
Precious metal stocks are individual stocks of companies involved with precious metals. Some stocks offer investors the option to redeem their stocks for precious metals, but redeeming the metals depends on their terms and availability.
That being said, when starting out in precious metals, it makes more sense to invest in physical precious metals, at least in the beginning. The reason behind this is you will own the physical metal instead of owning something that relies on the performance of people who control the fund or companies since when you invest in stocks, you own a piece of the business.
There are quite a few risk factors when owning stocks and mutual funds:
If the company, or companies, went out of business, you could lose your investment since what you own is stock in the stock market.
You’re also relying on the performance of companies when it comes to individual stocks. With a mutual fund, you’re not only relying on the performance of the companies but also the performance of the person in control of the mutual fund selecting the companies.
Not to mention the risk of the overall market conditions could contribute to the loss of value in stocks and mutual funds.
These reasons are why it’s crucial to own real physical metal. When it is in your own hand, you own it. No one else is in control of it. It won’t matter if the whole stock market crashes or a company goes out of business. You would still own the physical metal that you invested in.
The reasons above convinced me that precious metals in physical form are valuable money.
I would much rather have precious metals such as gold, silver, and platinum saved than fiat bills since fiat is constantly losing value. According to an article on Watcher.Guru, the dollar has lost 98% of its purchasing power. In other words, $1.00 buys way less than it did in 1971 and continues to do so. So, I would rather have my money tied to precious metals than fiat currency.
If fiat is constantly losing value, what will eventually happen to fiat? What financial future will that leave you with? Robert Kiyosaki helped me to see the viewpoint of saving silver over saving just all dollar bills:
Owning precious metals like gold and silver is one of the best investment opportunities and a great way to diversify your investment portfolio. Having them feels like a safe haven and is the ultimate backup for money since it is a real tangible asset.
Also, I know the Federal Reserve and other central banks are storing up precious metals such as gold. Shouldn’t we do the same?
Having precious metals feels like owning real money. The way I saw it was since the dollar bill is losing value at its fastest paste ever, why would I stay in fiat? I’d rather have a chance at preserving and building wealth than stay in something that is undoubtedly taking wealth because when the inflation bubble bursts, it won’t be pretty.