As 2019 closed on a high note for gold, investors are looking forward to another year of success. There are many factors that influence spot prices, from markets to speculation. As a bullion investor, it’s always a good idea to remember the fundamental reasons to include precious metals in your portfolio. But we’re going to take a look at some of the predictions being made for bullion in the upcoming year, and some of the core principles behind investing in gold and silver.
Gold prices were up 17% for the year by the end of December 2019, and the question now is whether the metal will continue its upward surge or shy away from a new 7-year high. Given that the metal met some important benchmarks (such as surpassing the $1,500 USD mark) many market watchers set at the beginning of 2019, there’s good cause for optimism.
The Precious Metals Market in 2020
Market predictions appear to be divided into two camps for 2020. On the one hand is the bearish narrative that’s looking at the Federal Reserve’s monetary policy, while the bullish camp is looking at the possibility of a recession.
Precious metals have historically correlated to both interest rates set by the Fed. When the Federal Reserve has raised interest rates, treasury bonds have become more productive and more appealing to risk-averse investors, deflating gold demand.
However, ongoing uncertainty and the prospect of a looming recession has other analysts thinking the yellow metal could continue its climb, facing its next key level around $1,700 USD. As a safe haven asset, global uncertainty makes gold an appealing purchase.
Why Invest in Gold and Silver?
Every market has its ups and downs, but achieving long-term portfolio growth is about fundamentals, not worrying about short-term price changes. The more you stress out over day-to-day price fluctuations, the more likely you are to make fear-based decisions, buying high and selling low.
There are three fundamentals of investing in gold and silver widely recognized in the market:
- A hedge against other assets;
- A safe haven against crisis;
- A direct investment.
#1 Gold as a Hedge
Hedges are used to offset losses experienced in another asset class. One important reason that investors buy gold is as a hedge against currency devaluation, specifically the U.S. dollar, but also potentially other major global currencies like the euro and the Japanese yen.
Weakness in the dollar also tends to be related to inflation, as it leads to higher import costs. This can also make gold a defense against inflation, as the metal has a history of preserving value against inflation, unlike cash.
There are also situations in which investors worry about the effects of fiscal stimuli programs like quantitative easing, which essentially created credit out of nothing. It was the 21st century equivalent of printing new money by fiat, a course of action that has historically led to hyperinflation.
#2 Safe Haven Asset
A safe haven asset is a financial product that investors trust no matter what. It’s what you want your money to be during a financial crisis or historic economic collapse. While the stock market tends to rise on economic confidence, gold prices (and silver) surge when there are serious doubts about long-term economic stability, such as the eurozone crisis.
#3 Direct Ownership
Reinforcing the idea that precious metals are safe, direct ownership is why bullion bars and coins remain among the most popular ways to own precious metals. Bullion reduces the risk that you could experience a loss due to a third-party, fraud, or another party defaulting on a contractual obligation. When you own bullion, you are responsible for its storage, whether that’s in a safe, at the bank, or with third-party storage.
Investing in Precious Metals Responsibly
Precious metals are a great investment because they reduce your risks, but you still have to be careful about where you buy gold and silver. One of the most reliable places to purchase precious metals is a local bullion dealer in Toronto like us. You can visit our storefront and see what you’re buying or order online.
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If you’ve heard about the Monex issue, you might want to do proper research before buying bullion. Monex operated an illegal scheme in which they took a small down payment from clients to purchase more gold and silver than they could afford. They leveraged metal prices and locked clients into a payment plan that became unfeasible when prices went down.
There are a few rules of thumb you should follow in order to invest in precious metals responsibly and avoid scams.
- Only buy the precious metals you can afford with cash in hand. Never buy precious metals by going into debt.
- Only buy fine gold and silver (minimum purity of 99.99%).
- Look for LBMA and COMEX accreditation from your dealer.
- Research premiums and make sure you’re not overpaying.
Investing in Rare Earth Metals
Some investors are always looking for a new opportunity to diversify their portfolio and capitalize on untapped markets. That leads some to ask: are earth metals a good investment or not worth the effort?
Rare earth metals aren’t exactly household names like copper or other commodities. They include elements like lanthanum, promethium, europium, terbium, thulium, ytterbium, and many others. They’re divided into light and heavy categories.
Rare earth metals are used in a huge variety of electronics, including computer memory and DVDs, as well as military tools like night vision and communications.
Light earth metals do not generally make a good investment. There is a surplus of supply and they are not really as rare as the name would make them out to be. Heavy earth metals are a different story. They are considerably harder to find and they are mined almost exclusively in China. However, the conditions in which they are produced are often marred by human rights violations. By contrast, much of the world’s precious metals trade follows high standards for ethical sourcing.
When you buy gold and silver, you should be making a safe investment. The power of precious metals is their long-term preservation value. No matter what tomorrow’s market looks like, bullion is about counteracting risks.
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