My Investment Idea
Precious Metals
Precious metals such as Gold and Silver are at a critical point in our history. They have never been valued so high, nor have they been so accessible to the ordinary investor. Precious metals currently provide a great investment opportunity in my opinion. The value in precious metals such as gold and silver is in its ability to be a preserver of wealth and as a currency value. Historically the wealth of a country was always determined by the amount of Gold the country had in its reserves. Precious metals presents a real measure of wealth because they are not subject to inflation or manipulation. After the second world war, countries decided to value their currency relative to a US Dollar rather than the gold standard, this left their currencies subject to monetary policy done in the United States. Now gold is no longer pegged to any national currency, rather it is more commonly used as an investment or a symbol of wealth.
Today an interesting opportunity presents itself in valuing precious metals such as gold. Since gold is not subject to inflation and the value is relatively reliable, it stands to reason that investors who are unsure about the future value of their home currency will seek a stable alternative to protect their wealth. To be more specific, in the United States, monetary policy in the form of Quantitative easing and low interest rates is causing the value of One US dollar today to be a lot less than it was four or five years ago. With the probability of even more monetary policy in the form of Quantitative easing three (QE3), it seems that the US dollar will lose even more value in the future. For investors that recognize this as a threat to their wealth they will seek out ways to preserve their wealth. The two most common and reliable options are to either invest in companies in the form of stocks or purchase a preserver of wealth or another currency.
Stocks would be a good idea, however the risk inherent in owning stocks are increasing. A company fares as well as the economy does, this would be a worse alternative to preserve investors wealth as the outlook for the economy seems to be “grey” at best. The recent credit crisis has led to a nationwide deleveraging of balance sheets, this means that companies and people are no longer borrowing money to support an expanding economy. This will invariably lead to a slowdown in economic growth which does not bode well for the future outlook for stocks. This leaves the second alternative which is to find another form of wealth preservation in precious metals or other currencies. Many countries in the world are facing the same sort of crisis in deleveraging of balance sheets, therefore buying foreign currency would only serve to shift the issue to a different country. The solution to the issue of wealth preservation in this case would have to be precious metals. Gold and other precious metals will always have value either as an aesthetic or as currency, in addition to that, gold and other precious metals are not subject to manipulation by over production, rather the laws of supply and demand are the two main factors governing the price of precious metals. As demand increases and the supply stays relatively the same, the value of gold and silver should appreciate for investors everywhere. Precious metals are the ultimate inflation hedge and safe haven in times of uncertainty which is what we are experiencing now in North America and Europe.
Investment Vehicle
Precious metals ETF (GLD, SLV, CGL) these are exchange traded funds that track the price of owning the underlying commodity with a 99.91% accuracy
Commodity future – This is a risky option but provides an opportunity to own precious metal with leverage
Physical form (Bullions, bars, E.T.C) – Buying the physical precious metal could prove even more expensive, as the owner would have to be concerned about security and storage.
Mining company stocks- Although the value of a stock has other variables besides the value of the underlying precious metals, buying stock in a company that is exposed to the precious metal of one’s choice is another way to be exposed to the effects of change in the price of the commodity.
