Whether to invest in precious metals depends on your profile

Precious metals prices are being driven to historic highs by recessionary fears, rising interest rates and a depreciating dollar in the U.S. coupled with other geopolitical, market and economic uncertainties throughout the world.  This “perfect storm” currently driving the prices of gold, silver and platinum has many investors wondering whether or not precious metals will add glitter their portfolios.

The simple answer is that there are no simple answers. The correct answer for you depends totally on your personal investment profile including your risk tolerance, and long-term financial goals. To help you make the right choice, here are the pros and cons of precious metals investing.

Pro:

Throughout history, precious metals have been a very popular investment, especially during periods of economic turmoil or political uncertainty.

More recently, investment experts have come to view precious metals as a good way to diversify a portfolio and a recent study from the CFA Institute, a global association of investment professionals, supports that claim.

The study examined the long-term investment benefits of a “significant exposure to precious metals” in U.S. equity portfolios and found that “precious metals serve as an effective hedge against the typical decline in equities that occurs during an increasing interest rate environment.”

Why invest now? 

First, as a form of investment performance insurance: precious metals typically do well when other types of investments are lagging.

Second, because precious metals are “precious” for a reason; there is a very limited supply. In fact, gold production has been declining since 2001 as production costs have raised.

Con:

Like any commodity, precious metals prices can be very volatile. What goes up can come down.

Betting on one or even a few precious metals mining companies can be very risky. What if a strike turns into a bust?

One of the most assured ways to get portfolio diversification, and protection, is to invest in mutual funds that hold precious metals investments. You get exposure to a wide range of companies involved in exploration and mining, often in a number of sectors (gold, platinum, palladium, silver and even diamond), and some gold funds may even invest directly in bullion. Due to the cyclical nature of precious metals stocks it is recommended they be held within a well diversified portfolio and held for the long term in order to effectively reduce market risk.

What’s right for you? Your professional advisor can help you make the most “precious” decision for your personal situation.

Michael Harvey is a financial advisor. He can be reached at 604-853-8111.