Introduction to precious metals
- Gold and silver have had a 5,000-year history as money, holding their value and standing the test of time‑independently valued by cultures across the world, without ever meeting each other to discuss it. As “hard assets”, they hold no counterparty risk and unlike money in the bank, they are nobody else’s liability. They are scarce in nature (therefore, have “intrinsic value”), with governments being unable to print them.
- Some investors like precious metals because they are a “safe haven” asset. They are generally uncorrelated to share markets, with gold being called the “fear metal”. In the 5 worst years on the ASX, shares declined an average of 23.2% each year, with gold rising an average of 29% each year. This inverse correlation allows share market investors to diversify their portfolios with precious metals exposure, reducing overall portfolio risk in doing so.
- Others like precious metals because they are a “hedge” against inflation, meaning that during periods of high inflation, precious metals generally perform very well. During the last period of double-digit inflation in the USA, the 1970s, gold went from $35 USD per ounce in 1971 to $850 USD per ounce in 1980, a 24x increase in a decade during which the share market moved sideways. Silver outperformed gold during this same time, going from $1.30 USD per ounce in 1971 to just under $50 per ounce in 1980, a 38x increase.
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