Series 65: Precious Metals

Precious Metals

Many investors put some of their portfolio into precious metals, such as gold, silver, and platinum. They do this for a couple of reasons. First, because precious metals, as an asset class, deliver returns that offer low-to-no correlation with stocks, bonds, and other traditional investments. For example, in the 50-year period from 1964 to 2014, gold as an investment had a correlation of 0.12 with U.S. equities as measured by the S&P 500 and a -0.05 correlation with returns on 10-year U.S. Treasury bills. Precious metals, therefore, may be used to diversify and hedge a traditional stock/bond portfolio. The other reason investors put money into precious metals is because they believe that a rare and valuable physical commodity, such as gold, will preserve its value at times when other assets (paper) may be vulnerable due to political or economic turbulence. Precious metals investing is particularly popular with investors who do not trust the government or the financial markets. Underlying precious metals investing is the idea is that the supply of precious metals is limited, but demand for precious metals will only grow as the world’s population grows.

Precious metals investors can choose to buy physical gold, typically as coins, but this can present a safekeeping problem and a resulting storage cost. Market innovation to