Why invest in Gold and Silver?
We have often heard about investing in stocks and bonds, but little do we hear about allocating a portion of our assets in gold and silver. As financial markets become more sophisticated, investors can directly trade their precious metals through digital platforms, related stocks, exchange-traded funds, and unit trusts. Here are five key pointers that every investor should take note.
Beyond stocks and bonds
Gold and silver have gained traction among investors as good diversifiers in one’s portfolio. Diversification can be enhanced by including instruments that are less correlated with existing assets in a portfolio. Spreading your investments across asset classes, regions, and sectors helps to cushion the impact when one area of your portfolio takes a hit. In fact, gold has shown to have a low correlation to major asset classes. As such, building a portfolio with exposure to precious metals might be a good choice.
They don’t just look pretty
Industrial metals are key raw materials to produce certain goods and are influenced by supply and demand factors. For example, one important usage of gold is manufacturing electronics – such as your phones, laptops, and even electronic appliances that we use every day. Silver is also used mainly for the manufacturing of solar cells, batteries and even medicine. The rise of emerging economies will also continue to ramp up their demand. As mining volumes falter, this will limit the supply of these metals and likely support prices in the long run. Now you know that these precious metals are beyond that of ornamental value!
Gold glitters during uncertainty
When Covid-19 first roiled the economy, gold and silver withstood the volatility and performed steadily in 2020. Gold even peaked to an all-time high last year as investors found safety in the yellow metal. They are often looked to as safe-haven assets and a good hedge against economic uncertainty.
Gold also forms part of the central bank’s reserves, as monetary authorities load up the bullion to diversify from the US dollar. Within the commodities space, precious metals have outperformed general commodities in terms of their long-term total return.
Unnerved by massive liquidity
The massive amount of liquidity pumped into the economy following the pandemic has put the US dollar and major currencies under pressure. Simply put, gold serves to be a stable source of value even as major currencies may be hit by depreciation when monetary supply increases. Despite taper talks by the US Federal Reserve, the large amount of money supply circulating in the economy will likely continue to support gold valuations. Investors look to gold and silver as secure assets that can preserve their wealth and purchasing power.
Your first pot of gold and silver
While it appears that gold and silver are worthwhile investments in one's portfolio, investors should be aware that prices of precious metals can be volatile. Both gold and silver are also very liquid commodities which means that investors can easily turn them into cash. Investors looking to invest in precious metals can use this asset class as a diversification tool in their portfolios to reduce their risk when their stocks and bond holdings are affected. Remember that investments come with risk, and investors must do their proper research before making their decision.
To diversify your portfolio with gold and silver, open a Precious Metals Account and start investing today. You can buy these precious metals conveniently on the OCBC Digital app, with no sales charge or custody fee, and no holding of physical assets. Starting from as low as approximately 25 SGD for gold or 0.35 SGD for silver, you can easily and conveniently hedge your investments with these safe haven assets.
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