5 Reasons Why Precious Metals are the Best Investments Right Now

A majority of investors have found that traditional investments have let them down in the last several years. The stock market is down 4,000 points since the 14,000 plus highs of the Dow Jones in 2006-2007. Bonds’ yields have plummeted along with the drastically falling interest rates. Real Estate prices are down in some cases more than 25% since the housing crash began in 2007. Some experts, like the founder of the Case-Shiller Home index predict another 20-25% declines in real estate are possible over the next several years before the prices stabilize and improve.

Photo by Giorgio Monteforti via Flickr

When you wonder whether you should invest in gold and silver today, the answer is a lot easier than it used to be when other traditional investments were performing well. For many different reasons, gold and silver represent a better investment opportunity today than they have in many years, and they even have the potential to be some of the best investment opportunities in fact.

The Backdrop of Gold’s Performance since 2006

Precious metals have outperformed other investment classes for some time now. Gold has been on a major winning streak for the last ten years in a row. Over the same time frame when other traditional investments’ values are either down, flat, or only marginally improved, gold has risen from $250 per ounce to over $1,250 per ounce.

Gold has more than doubled in value since 2006, giving it a nearly 50% a year average gain since the financial crisis and Great Recession began. This is a reason that investors who are wary of gold offer as a caution for getting involved in the yellow and gray metals.

The truth is that when one adjusts gold’s early 1980’s former high price of around $850 per ounce for inflation, then the real all time high of gold in today’s dollars would be over $2,800 per ounce. This translates to a possible additional gain up to the inflation adjusted highs of another $1,550 per ounce, or over 120% from the present levels.

Similarly, silver is at less than half of its early 1980’s high of $42 per ounce now. It’s inflation adjusted high would weigh in around $140 per ounce. Silver has even greater possible room to gain than gold, with $120 separating its present price of $20 per ounce from the inflation adjusted highs. This means that it has possible increase potential of as much as 600% from the present levels.

Looking at these inflation adjusted high figures and their distance away from the current prices of the two precious metals, it is clear that there is plenty of additional opportunity left for investors considering them today.

Now that you know that gold and silver are actually far away from their true all time highs, it is necessary to examine the many reasons that the precious metals should only continue to climb back towards these inflation adjusted highs. There is no shortage of convincing arguments with both gold and silver.

5 Reasons Why Gold and Silver Prices Will Rise

Gold and Silver as the Ultimate Hedges Against Inflation and the Dollar

With all of the massive amounts of dollars that the Federal Reserve has been pumping into the U.S. and even world economy over the last three years, investing in gold and silver as hedges against inflation and a possible sharp drop in the dollar makes a lot of sense.

The U.S. dollar money supply domestically and in the world has been increased by more than 300% in the last three to four years. Many mainstream economists now agree that major inflation is in the cards for the U.S. in the near to medium term future. Inflation destroys many different kinds of investments, including the dollar’s value itself, but it only helps out the prices of gold and silver.

These two precious metals’ values exist independently of the dollar, and often move in the opposite direction. As significant inflation rises or the dollar plummets in value, look to gold and silver to significantly gain in value. This by itself is enough motivation for why you should now be investing in gold and silver.

Gold and Silver as Protection against Financial Market Instability

The stock markets have rallied impressively off of the lows of several years ago, but signs of additional financial and economic turmoil are back on the horizon. A significant amount of consistent recent economic data has turned negative, leading many to speculate that a double dip recession lies ahead. This would undoubtedly bring the stock markets around the world back down.

Gold and silver typically move in the opposite direction as do stocks in turbulent economic times like these. On top of this, the prospect of numerous countries defaulting on their unsustainable sovereign debt levels is higher now than it has been in many decades. Because of the economic and financial uncertainties once again plaguing the world economies, now is a smart time to for you to invest in gold and silver.

Buying Gold and Silver Based on Supply and Demand Fundamentals

Gold’s production has been declining for years, and some gold mining experts, like the CEO of Barrack Gold, have predicted that it has entered a terminal and irreversible decline. Silver’s demands are only increasing while they supply remains roughly level. Because of the supply and demand factors surrounding both gold and silver, there is likely to be a rising demand and diminishing supply for the two metals for at least the foreseeable future, and possibly for a lot longer time frame. The increasing scarcity for the precious metals and the accompanying rising demand are very good reasons for you to buy gold and silver today.

Buying Gold and Silver Based on Their Traditional Store of Value

One thing that gold and silver can successfully claim that no other investments or currencies can is that they have been trusted as a universal store of value for more than five thousand years. This is an impressive track record. Gold and silver always holds their value or go up over time. What other investment or currency can begin to make this claim? Because of their traditional roles as universal stores of value, you should consider adding gold and silver to your portfolio today.

Buying Gold and Silver as A Diversifier of Your Portfolio

In light of the performance of the other major asset classes over the last several years especially, you are likely looking for a way to diversity your portfolio. Buying other dollar denominated investments is not truly diversifying, since they are all still valued exclusively in dollars.

This is where gold and silver come in handy. Since they are not tied to any single nation or currency, nor do they have any liabilities like boards of directors. scandals, default potential, or interest rates, they represent completely autonomous asset classes. The metals’ values not only tend to go in the opposite direction of stocks and bonds, but they also move opposite the U.S. dollar too, making them an attractive hedge and diversification for all of your other investments that are U.S. dollar denominated and based.

For true diversification, you should buy gold and silver. They have so much more opportunity than other comparable investments right now, and they offer safety and protection against hard times as well.

About the Author

By , on Sep 29, 2010
author
Thomas Herold is a successful entrepreneur, personal development and financial coach. He has recently committed to sharing this knowledge in a new venture, Building Wealth with Silver.

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Leave Your Comment (6 Comments)

  1. Laura says:

    Thomas, I really liked this information. Gold and Silver have held their value over time. As for purchasing gold and silver, it is important to be able to actually own it. Please feel free to further research my site and I think you will find some awesome info.

  2. @Jenna: I recommend APMEX, which I review on my web site:

    http://investorjunkie.com/3176.....ld-online/

  3. Thomas Herold says:

    @Jenna

    I used to buy gold at Monex.com, another good place is Goldsilver.com. You can also buy gold and silver like shares with ETF’s (Exchange Traded Fund). All you need is a trading account like Ameritrade.

  4. Jenna says:

    Thanks for such an informative post. Where does one buy gold?

  5. Thomas Herold says:

    @Nick

    It is still a good time to buy. The second phase of the commodity boom has just started. Financial advisers usually work more for themselves than for their clients. Especially now most of them operate with knowledge that is completely outdated. In today’s fast changing economy it’s important to take matters in your own hand.

  6. nick says:

    funny how all allocation portfolios are now including precious metals. The problem is they didn’t include them about 5 years ago when it really would have been the time to buy. I am having trouble with all the buzz words that financial advisors are continuing to use to make their clients feel warm and cozy…if anyone else is like me all they want is safe, consistent growth that will get the the money they need when they retire, the roller coaster ride has gotten really old.

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