Investing in precious metals can be a great way to enhance one’s retirement portfolio’s returns in 2020. Keep reading to learn if doing it this year is a wise investment strategy in this article.
In this article:
- What Are Considered Precious Metals?
- How Did Precious Metals Prices Perform in 2019?
- What Makes Precious Metals an Attractive Investment for Investors?
- Why Should Investors Consider Precious Metals for Their Retirement Portfolios in 2020?
- How to Invest in Precious Metals?
- What Are the Risks Involved in Precious Metals Investing?
Investing in Precious Metals: Is It Worth It in 2020?
What Are Considered Precious Metals?
These refer to types of metals that are limited in supply (rare) and/or that have high market value. Their limited supply compared to most other metals, as well as their investment and industrial uses, are why precious metals have a high market value.
The top precious metals for most investors are:
- Industrial, special alloy metals like iridium
How Did Precious Metals Prices Perform in 2019?
In general, 2019 was a good investment year for precious metals. Increasing concerns over a potential international economic slowdown were a primary contributor to increased investor demand for them.
Gold prices registered one of its strongest bull runs since 2010, registering a 19% gain in 2019. On the other hand, palladium prices have surged to more than 50% in 2019, mainly because of a lack of supply and high global demand.
Aside from gold, platinum and silver are also safe investment alternatives during periods of high economic uncertainty. They also registered significant annual returns in 2019 (around 22% for platinum and 17% for silver).
What Makes Precious Metals an Attractive Investment for Investors?
Since time immemorial, people all over the world have considered gold a secure investment. Some of the reasons for this include:
- Investors typically rush towards gold during shaky economic periods and political instabilities.
- Investors consider gold as a financial asset that tends to maintain high economic value. Precious metals tend to keep their values when those of other financial assets go down.
- During the worst geopolitical situations like wars and political upheavals, money and other financial assets’ values can disintegrate. But with metals like gold, people can keep significant economic leverage for their needs (such as for safe passage, shelter, and food.)
Like gold, silver also has an excellent investment track record. However, compared to gold, its economic value is also tied to its wide industrial use, specifically as key components for many electrical and electronic equipment.
With the rise of emerging economies come upward mobility of their middle classes. This can continue increasing demand for appliances, electronic gadgets, and industrial equipment that require silver as inputs.
As demand for such products increases, so will the demand for silver. Ultimately, it can continue pushing demand and prices of silver up.
Palladium and palladium’s market prices are also, to a large extent, influenced by industrial demands. These two metals are particularly important to the automotive industry, such as in automotive catalysts used to reduce harmful emissions.
As demand for vehicles all over the world continue to grow, demand for these precious metals will grow, too. And with high demand come higher prices.
Why Should Investors Consider Precious Metals for Their Retirement Portfolios in 2020?
Many investors and analysts believe prices of precious metals will most likely continue to rise in 2020. Why?
One reason is increasing concerns over a potential global recession, which many economists believe is already due. Another related reason is, given that most major stock markets are at all-time highs, a reversal may be coming soon.
Central banks worldwide are doing two things that can positively impact precious metals’ prices in 2020:
- Loosening their monetary policies, such as lowering interest rates and driving down yields of fixed income securities in general
- Buying more precious metals, specifically gold, which continue to provide necessary upward push on their prices
In general, a cocktail of low-interest rates, economic uncertainties, and overvalued stocks make investing in precious metals, like gold, a wise strategy in 2020.
How to Invest in Precious Metals?
One way to invest in precious metals, one which most people are aware of, is buying physical metals. These include bullions, bars, coins, and pieces of jewelry.
The other way to invest in precious metals is indirect. By this, it means investing in exchange-traded financial assets such as:
- Precious metals-backed derivatives, such as options and futures contracts
- Publicly-traded stocks of precious metals mining companies
- Exchange-traded funds composed of precious metals mining companies
- Mutual funds comprised of precious metals mining companies
Typically, these are available on major exchanges such as the New York Stock Exchange (NYSE), Chicago Mercantile Exchange, and the like.
What Are the Risks Involved in Precious Metals Investing?
Practically all investments come with risks, except for government-backed debt securities denominated in their local currencies. For precious metals investing, the most relevant are market and liquidity risks.
What is market risk? Market risk is the risk of losing money when market prices go down.
While precious metals have high market values compared to most other metals and financial assets, such values fluctuate.
While 2019 has been a banner year for most precious metals and market sentiment remains positive for 2020, it’s not a guarantee of high returns. There’s still a risk that by the time one needs to liquidate the investments, their values are lower than their purchase prices.
The key to minimizing this risk is a long-term investment mindset. This minimizes risk for losses by enabling investors to wait long enough for precious metals prices to rise again.
The other relevant risk for precious metals trading is liquidity risk. The speed at which one can liquidate this type of investment depends on the specific type of precious metals investment.
- Investing in exchange-traded mining stocks, funds, and derivatives provide high liquidity because of their trading platforms.
- However, investing in physical gold or silver takes longer to liquidate, because one must personally look for buyers.
Investing in precious metals can be a good way to diversify one’s retirement investment portfolio and enhance its total return in 2020. The keys to choosing wisely among precious metals investment opportunities lie in understanding your personal risk tolerance and each opportunity’s risks.
When it comes to your retirement portfolio, are you already investing in precious metals and if so, what type? Let us know in the comments section below.