Why invest in precious metals?
There are many ways in which we could either spend or invest our money, so why do so many people choose to invest in precious metals?
There is certainly something unique and tangible about holding a bar or coin that has been formed from precious metals. But an investment decision is clearly about much more than simply considering how gold, silver or platinum would look in the palm of your hand. Other considerations will include the rarity of precious metals, the tax and vat treatment and how they can be used to hedge other investments in times of economic uncertainty.
A brief history of gold
Since the dawn of civilisation, precious metals have been recognised as valuable. Gold is still the most popular precious metal investment and it has fascinated people all over the world as far back as history takes us. Our earliest records refer to gold being desired both as an art form and as an international currency. Gold has always played an important part in the international monetary system and gold coins were first struck in around 550 BC. Gold coins circulated in many countries before paper money was introduced and even then – the gold standard meant that currencies still maintained an explicit link to gold. By the late 19th century, many of the world’s major currencies were fixed to gold at a set price per ounce and this persisted in different forms for over one hundred years. This means that precious metals gave rise to the very concept of ‘money’ as well as so many of the traditions that continue to define international culture.
It may be better to say that a precious metal is one that is considered valuable and desirable not only because it serves as a universally recognised unit of wealth, but also as a material whose value can be increased further by being made into art, jewellery or even coins and bars. Today, investing in precious metals could provide a useful means for diversifying your investment portfolio, with gold, in particular, often being seen as a safe haven during times of economic uncertainty.
Even in today’s digital society, precious metals are just as sought-after as they have always been and are chosen by many as both a way of investing and protecting wealth. Although there are many ways to invest in precious metals, the ownership of physical gold, silver or platinum – the ability to touch it, to hold it, and even the freedom to protect it or move it from place to place – never seems to lose its appeal.
But aside from simply owning an appealing asset, why do people choose to invest in precious metals today?
Although precious metals have always been seen as valuable, since 2001, investment demand for gold worldwide has grown 18% per year on average*. This increase has been driven in part by the advent of new ways to access the market, such as being able to purchase gold online, but also because of a renewed focus on risk management following the financial crisis in the US and Europe during 2008-09. Although focus has increased recently, during times of economic uncertainty, precious metals have always been seen as a safe-haven and a way to hedge and protect your investment and financial portfolio against volatility and movements within the market.
Many experts, including the World Gold Council, advise putting between 5 and 10% of your portfolio into ‘safe haven’ investments, and gold has classically been one of the top choices for this.
The reasoning is that, from a historical perspective, gold prices tend to move independently and often contrary to movements in the price of other assets. Therefore if the value of all your shares, property and other investments goes down, the expectation is that the price of gold will not move the same way and may well rise to offset some of your losses. Furthermore, physical gold in your possession has no counterparty risk (unlike savings stored in the account of a bank that may fail, or shares in a company that could go into liquidation), and is therefore viewed as even safer in the event of extreme economic stress. For this reason, it has been considered a ‘safe’ investment strategy to commit some of your portfolio to gold because its value may increase in the kind of economic climate that would see your other investments losing value.
This interest in gold and other precious metals is shared across the world. In Germany, for example, investors consider gold as a better investment to protect their wealth than in bank saving accounts. China has one of the longest and most detailed written histories in the modern world, and the stories it tells all include gold, silver, and even copper. Gold is symbolic of wealth and luck in China, and the giving of golden (and more recently golden-coloured) gifts has always been the hallmark of high-status people. Similarly, precious metals also have a long and hallowed history in India, but gold, in particular, is revered. The gift of a gold dowry is an essential part of most traditional Indian weddings to this day.
As well as protecting your other investments, many people invest in gold because of the financial returns which may be available.
If you take a historic view on the price of gold, you will see that the price has increased by an average of 10% per year since 1971. Similarly, when we see times of economic or political uncertainty, the price of precious metals can rise dramatically and investors can see significant growth over a short period of time. United Kingdom’s decision to leave the European Union in the 2016 ‘Brexit’ referendum was one of the most significant political events in recent years. As the votes began to be counted and ‘leave’ was beginning to appear the victor, the price of gold quickly topped over £1000 per ounce – a level not seen for more than three years. It continued to rally as much as 21% in early trades in sterling terms as the value of other investments fell sharply.
Because of all of these factors and many more, investment in precious metals are becoming more mainstream. While it may be tempting to think that gold, silver and platinum coins and bars are the preserve of the super-rich, as you picture movie scenes of gold bars piled high in warehouses or vaults. Fortunately, the reality is rather different to those imagined scenes.
The gold and metal markets have probably never been more accessible than they are today. Some smaller gold coins produced by The Royal Mint, as well as our RMR bars, for example, provide a relatively inexpensive means of entering the market. Signature allows anyone to purchase gold, silver or platinum from as little as £20, and store it within The Vault – our on-site precious metal storage facility.