Any investor who has performed even the slightest bit of research into investing in precious metals will know that they’re uncorrelated investments. This means that their values are generally not impacted by the events taking place in any one particular market or economy. Because of that, they’re seen as a “safe haven” where investments can be protected from inflation and economic collapse.
However, the global economy does impact precious metals markets in a number of ways. For one, a lack of confidence in any major economy can cause many investors to turn to this safe haven investment, fueling activity that leads to an increase in the value of precious metals. As you’ll see, there are many other things that can cause the value of any particular precious metal to rise and fall.
What May Cause the Value of Gold to Increase?
Gold is not only the most popular form of investing in precious metals for the average person, but also for major governments. China is one of the largest purchasers of gold and completely prohibits the exportation of gold originally mined within its borders. They’re doing so to protect their wealth from global hyperinflation, caused by what many see as irresponsible fiscal policies regarding fiat currencies.
Furthermore, some countries are repatriating their gold from the U.S., including Germany and France. Many predict that the United States no longer owns enough gold to fulfill these requests in the event that many more countries decide to do the same. Were this to happen, the shortage would lead to an incredible increase in the value of gold.
What May Cause the Value of Silver to Increase?
Many who are interested in investing in precious metals completely overlook silver. Historical records show that an ounce of silver is valued at 1/15th of the value of gold. Recent activities in the precious metals markets have distorted this ratio, though, and it currently stands at 1/55th. Because of this major discrepancy, many experts predict that silver is on the brink of a massive upswing in value, as it returns to its historically maintained value.
What May Cause the Value of Platinum and Palladium to Increase?
Platinum and palladium are largely overlooked, too. Both have far fewer industrial uses than either gold or silver, leading to a comparative lack of demand. With that being said, many emerging economies are purchasing large quantities of both platinum and palladium, resulting in a slow, steady increase in demand. Because of this, both metals tend to perform better than gold or silver when the economy is prospering.
It’s also important to understand where platinum and palladium come from. Over 80% of the annually mined supply comes from South Africa, Zimbabwe and Russia. The increased likelihood of political instability in these countries has caused many to predict that both are poised for a sudden, unexpected increase in value. Recent strikes in one of the largest South African platinum mines lend credibility to this theory.
What’s the Best Strategy for Investing in Precious Metals?
As has been demonstrated, global economic uncertainties can lead to both an increase and decrease in the value of all precious metals. At the same time, these uncertainties may or may not prove to be factors for those investing in precious metals. Like all forms of investing, diversification is the key.
Those who are invested in gold will benefit from rampant market speculation and major global economic events. Those invested in silver will benefit from the potential leveling out of the current discrepancies in the ratio of values between gold and silver. Those who are invested in platinum and palladium will benefit from economic prosperity around the world, and may also benefit from the political instability plaguing the areas providing the majority of the supply.
