Precious Metals Outlook

When investors began to feel wary about investing any more of their money in collapsing international capital markets, they often turn to investing in precious metals in order to diversify their portfolios.  This is because paper assets, such as stocks and bonds, tend to look much less attractive during periods of severe economic turmoil, such as what happened in the period following the Financial Crisis of 2008.  In such periods, the bids for both equity and debt investments began to disappear, causing market participants to put even more pressure on the sell side of the marketplace by liquidizing their paper assets in order to reduce the marginal debt that they owe.  This act of deleveraging the market is the essential reason why bear markets for paper assets such as stocks and bonds occur so quickly, and why the fall in the markets are so steep.

Precious metals such as gold and silver have always been prized possessions, dating back to ancient times.  The fact that they are relatively scarce, easily portable and can be divided into smaller pieces make them ideal candidates for being a physical store of value in commerce.  The first standard weight coins made out of gold and silver were believed to be minted all the way back in the ancient city of Lydia in Asia Minor all the way back in the 7th century BC.  The attraction to gold and silver continues today as investors who are afraid of domestic currency devaluation and inflation tend to invest in gold and silver during times of economic trouble.  This is because knowledgeable investors understand that central banks, such as the Federal Reserve, can influence the money supply by simply minting more money on their presses whenever they so choose, while they obviously do not have the same options when it comes to gold and silver.  Gold, silver and other precious metals are a much more stable form of currency and investment because there is a limited, known supply of the metals which is regulated by global mining production.

The international economic depression that occurred as a result of the 2008 Financial Crisis brought about record demand for gold and silver over the past few years.  This argument is supported by all of the recent historical market data.  In late 2005, the spot price for an ounce of gold rested at around $400.  Five and a half years later, in the summer of 2011, the spot price of gold had increased to over $1900 for an ounce.  The incredible increase in the spot price of gold during this period is often linked to the fact that the United States Federal Reserve had been taking advantage of their monetary policy capabilities to inject the marketplace with a ton of cheap, easy money.  The ready availability of tons of cash caused many investors to fear that a dramatic inflationary period was sure to follow, which resulted in them turning to precious metals like gold and silver to hedge against such risks.

Other precious metals that investors looking to diversify their portfolios can invest in include Platinum, Palladium and Rhodium.  All of these precious metals demonstrate similar capabilities as silver and gold to be a smart place to invest one’s money during times of economic turmoil.  Platinum investing, in particular, seems to be a strong choice for investors looking to seem strong appreciation in the near future.  Platinum is one of the rarest metals on Earth, 80 percent of the world’s store of it being mined and produced in South Africa.  That means that if there is any type of social, political or labor unrest in that area of the world, the potential to disrupt the production processes of platinum could easily result in a sharp increase in platinum prices.

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