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We have earlier spoken several times about investing in precious metals. However, precious metals investing isn’t always what it seems to be. There are myths that need to be debunked about precious metals and in this article, we’ll look at what they are. Investment guru Warren Buffett once said about gold that it’s dug out of the ground somewhere in Africa and that it is buried there again and people are paid to guard it. Now, Warren Buffett has frequently spoken out against investing in gold and precious metals, but could he be right
As we all know, Buffett’s primary bias against gold is that his interests are in capital markets, banking and insurance. It’s a well-known fact that his company participated in bailing out the banks during the financial crisis of 2008. Being invested in the banking sector, it’s no surprise that his investment preferences would like in asset classes away from precious metals. If we look deep, we will realise that his outburst against gold is driven more by emotion and sentiment. For several thousand years, gold has been an investment vehicle of choice for the entire world. It was used for coinage and it has several wonderful attributes such as fungibility, rarity, durability and a great hedge against inflation. Its physical qualities make it invaluable in industries such as electronics and mobile technology, to name a few.
The age of the crypto-currency has seen investors doubting stable investment classes such as gold and silver, as many believe that eventually as we move forward to the 22nd century, precious metals may become redundant. However, the most important thing to keep in mind is that cryptocurrencies are a virtual medium. They are highly volatile and prone to great market risk and volatility. As they are not physical, investors have little control over the way they behave. Gold, on the other hand, is a highly physical and tangible asset that has been globally accepted as a repository of value for thousands of years. Gold is not a speculative asset, and investors looking to make a fast buck through short-selling would find gold unattractive. However, investors looking to build a rock solid portfolio that can outlive their own lives and can be bequeathed to future generations would find the stability of gold reassuring.
In order to look deeper into whether or not this myth has any basis, we need to take a long hard look at gold price trends over the years. It stands to logic, that when interest rates are on the rise, investors are better off putting their money into currency markets. However, if we see gold price trends as recent as 2015, we can see that the Fed initiated an interest rate hike in December of that year. It was commonly believed at the time that gold and silver would plummet. While the US interest rates rose from 2014 to 2016, both precious metals witnessed price increases
As gold is both a precious metal as well as a commodity, it has virtually no correlation with global stock markets, bond markets or housing. One of the factors that keep the price of gold and silver on the rise is scarcity, backed by high industrial demand. As technology progresses, this demand will continue to rise and as we all know, gold is a finite asset. A recent example is the famous 2008 global economic crisis. While virtually the entire stock market was wiped out, including stocks of mining companies, gold fared well for the year. Infact, we have ample proof that investor sentiment is geared towards investing in gold as a safe haven to protect against times of economic turmoil. Therefore, a global economic meltdown would see most investors turning to precious metals like gold and silver.
Physical gold and silver markets are very different from paper markets. When we say paper markets, it means exchange-traded funds or ETFs. It is true that some level of manipulation happens in the paper markets, which is mostly geared towards derivatives or futures. Size and clout do matter in these markets and ordinary investors are never privy to the information available to the top financial companies and big banks. These institutional investors have top-quality research, as well as key information that allows them to make smart decisions when trading. Moreover, since their trains are high volume, they are able to get the best price. Physical gold and silver are different. At Physical gold, many of our investors are ordinary customers, just like yourself. Our precious metal steam is able to advise investors like yourselves on the best way to buy gold and silver. We can also help you get price advantages since we are able to obtain large discounts.
Well, if you’re a shareholder of large companies you might notice that these big-ticket companies also pay you no interest and the annual dividend is a mere pittance. Infact, one of the biggest critics of gold – Warren Buffett’s company, Berkshire Hathaway does not pay interest or dividends. On the other hand, there are many junk bonds that can get you yield of 50% more for short spans of time, but they are highly risky and the market is very volatile. Even investments made in cash deposits, which are backed by your bank are prone to lose value, simply due to inflation. The reason that physical gold or silver doesn’t pay you interests is that they are not debt instruments. In the UK, many of your investments and physical gold are tax-free. This is an added advantage of investing in physical gold. However, your earnings from the equity and debt markets are subject to taxation.
The reality is in fact far from it. Precious metals do form an integral part of any asset allocation strategy, along with several other asset classes ranging from real estate, capital markets, mutual funds and cash deposits. It aids in diversifying a portfolio. Infact, many investment experts do claim that investors should have at least 12 to 15% of their portfolio allocated to precious metals.
When buying precious metals, it is important to connect with a reputed online broker. A reputed online broker will have a team in place who would speak with you, discuss your investment goals, advise you on how to invest and guide you on the best way to invest in precious metals. For example, at Physical Gold, all our products come with a certificate of genuineness and a guaranteed buyback, should you want to liquidate your asset. Like all other investments, investing in physical gold and silver requires some knowledge of how when and where to buy. This ensures that you don’t end up trading with a rogue broker and get cheated. As far as storage goes, many reputed brokers, including Physical Gold do offer storage facilities to their customers, should they not be willing to take delivery of their physical gold and silver. Our customers get to store their assets safely in an LBMA approved vault. Even if you do prefer taking physical delivery of your purchases, we are able to dispatch them via insured courier and can advise you of certain accessories that you can buy in order to safely store your gold at home.
In the same way that it’s important to debunk myths about precious metals investing, it’s also important to speak with knowledgeable advisors before making investment decisions and buying precious metals. Call us now on 020 7060 9992, or drop us an email via our website and a member of our team will be in touch with you shortly to discuss your investments.
Daniel Fisher formed physical Gold in 2008, after working in the financial industry for 20 years. He spent much of that time working within the new issue fixed income business at a top tier US bank. In this role, he traded a large book of fixed income securities, raised capital for some of the largest government, financial, and corporate institutions in the world and advised the leading global institutional investors. Daniel is CeFA registered and is a member of the Institute of Financial Planning.