Evaluating the Benefits of Precious Metals
American company, Palantir, which specializes in big data analytics, dumped $50 million worth of gold bought in 2021. It sold all its gold bars for $51.1 million. According to Palantir, at the time the gold was bought, the market operated differently; that is, interest rates were nearly zero and crypto was gaining high. It was, however, a savvy hedge against inflation. Today, food and energy prices are on the rise and the consumer price index hit its highest point at 9.1% in June 2022. On the other hand, gold prices are up over 12% since 2021. The question remains – is it still worth investing in precious metals such as gold?
Precious Metals: Are They Safe Bets?
Precious metals such as gold and silver have served as a ‘long-term store of value’ and have even been used as a form of payment. Investors also hold a certain percentage of their portfolio’s value in the form of precious metals. Gold in physical bars, coins, and instruments are used to diversify investments and serves as a hedge in case of market crashes.
Hence, putting your money in precious metals may be a good idea. As inflation continues to soar, increasing investments in gold can serve as a good hedge against rising prices. Recent economic data indicate that the economy won’t likely rebound quickly making gold investments interesting. Silver is another precious metal that is stable. The price increases are projected to hit +15%. Palladium is touted as well as a good precious metal to invest in yielding an 11% return last year. Rhodium, iridium, and platinum are other options to consider when dealing with precious metals.
Risks of Investing
One of the main risks in betting on previous metal is the potential performance lag in the long term. If you’re looking to invest in gold for retirement, for example, your investments might not give you the gains in the long-term if prices fall. In addition, betting on precious metals requires a deep and thorough knowledge of the market. Cash flow, taxes, and risks must be studied well because they are not the same assets as traditional stocks and bonds.
Another factor that can make precious metals unattractive as an asset is the current economic conditions. Now, interest rates are high rendering other forms of investment more attractive. Gold is losing its appeal because of rising interest rates. For example, bonds and certificates of deposits (CDs) are enticing giving greater returns. People might also prefer to put their money in high yielding savings products when interest rates are high. The Federal Reserve Bank recently raised its interest rate by another 0.25 percentage point. It is the 10th increase in just a little over a year which, it says, aims to target between 5% to 5.25%.
All in all, betting in precious metals as an asset has its advantages and disadvantages. Studying what works well for your investment mix and strategy is crucial so that you can avail of the benefits they offer and diversify your portfolio.