Using Precious Metal Investments to Diversify Your Portfolio and Protect Against Inflation

© Copyright www.InvestorMillionaire.com 2011 All Rights Reserved
8/18/2011

Gold and precious metal investments are all the rage right now. It would be hard to ignore their rising popularity. In recent months Gold has continued to rise in price aggressively. Maybe you have already added precious metal investments to your portfolio; or perhaps you are just considering the move. Is now the time to add precious metals to your investment portfolio?

Precious Metal Investments Offer Two Main Benefits:

1. Rapid Appreciation During Times of Economic Instability
2. Highly Effective Hedge Against Inflation (and Deflation)

Gold and precious metal investments are somewhat volatile and they should only be considered by investors that have the tolerance for such volatility. Prices can swing up and down dramatically on a daily basis. Precious metals, in particular gold, have been experiencing steady appreciation over the last decade; but that is not without periods of price declines and moderate volatility. Anyone investing in precious metals should be prepared for these risks. Most investors should allocate only a portion of their overall portfolio in precious metal investments.

Gold itself has little industrial or business use. Most of the value behind gold is derived from it’s usage as a currency by many governments throughout history. Silver on the other hand has several industrial uses which add to it’s intrinsic value.

There are several options available for those investing in precious metals. These range from purchasing physical precious metals to investing in ETFs and stocks/equities from companies that are involved in the mining of precious metals. Additionally there are investment options for specific precious metals such as individual gold funds/stocks, individual silver funds/stocks and many others related to each type of precious metal (copper, platinum, palladium, etc).

Newer investors will probably find that investing in the most common precious metals is the most effective strategy. This would include gold and silver primarily. These two metals are the most frequently bought and sold throughout the world. As a result most investors will find gold and silver investments to be the safest and most secure.

Rapid Appreciation...Will It Continue?

Gold prices have been increasing rapidly over the past decade and in particular throughout 2010 and 2011. Is it too late for investors to get in? We believe the gold prices will continue to increase through 2013 and most likely beyond that time. While gold is high-priced at present levels we believe it still represents a highly effective hedge against inflation. More importantly many analysts have suggested that gold prices could rise above $5,000 per ounce before the end of 2013. At the time of writing this gold prices have been hovering between $1,700 and $1,900 per ounce. Current price levels leave plenty of room for additional appreciation over the coming 12-24 months.

Silver is most likely under priced at current levels. Silver has been hovering around $35-$40 per ounce recently however it has reached levels near $50 per ounce within the last 12 months. Accordingly our analysis suggests that silver prices should exceed $80 per ounce within the next 12-24 month period. Fundamentally silver is less over-priced than gold and as a result it is a better investment opportunity for many investors that are making purchases in the current market.

Additional precious metals are worth consideration but only after establishing gold and silver investments within your portfolio; especially if you are just getting started in this sector. We will be posting additional articles to discuss investment opportunities within each precious metal segment.

Hedge Against Inflation (and Deflation)

Government spending is rising rapidly and unchecked. Government programs like ‘quantitative easing’ amount to nothing more than printing paper money to offset a government that is unable to balance it’s checkbook. Growing global demand for essential commodities will eventually overwhelm supply. Global outsourcing will result in dependency on production within lesser developed countries. The US dollar will continue to deflate in value if our government does not drastically change the present course.

These forces acting together will result in price inflation for many essential goods and services (gas, food, health care, utilities, etc.). Precious metal investments, especially gold and silver, will likely offset price inflation and provide protection against ongoing deflation of the US dollar.

Gold is used by many governments to back their currency. While some of these governments may be more financially stable than others the bottom line is their use of gold will be result in a large demand for some time. Economic uncertainty results in surging demand from investors; a demand that cannot be met by existing supply levels. Regardless of currency deflation gold and other precious metals will provide a hedge against price inflation. As inflation and price increases set in gold will rise in value at a rapid pace; we may even be seeing much of that happening before our very eyes in the current markets.

Others Tell Me Gold Is Overpriced

While gold has risen rapidly in recent months and years the bottom line is that gold will continue to rise in price based on the factors outlined in this report. Moreover silver is under priced at current levels and could potentially be even more profitable to investors at the present time. Global demand for gold and silver is quite strong. As global economic distress occurs the demand for gold and silver will continue to rise.

If global economies begin to show signs of a strong, permanent recovery the outlook for gold, silver and other precious metals will change and prices could decline or stabilize. The current economic forecast shows no signs of long-lasting improvement within our country or major national economies. While some news headlines may shout “Recession Over” out loud we see major indications that point to economic slowdown and ongoing turmoil through 2011, 2012 and possibly beyond. Accordingly we believe gold, silver and other precious metal prices will continue to rise over this longer term outlook. There may be short term periods of price declines within all of the precious metal markets; we strongly encourage investors to buy during the price declines. We define a significant price decline as 2% or greater within a seven day period.

We will be discussing different precious metal investment options in future articles.

© Copyright www.InvestorMillionaire.com 2011 All Rights Reserved