Precious metals can be an excellent investment asset. Here, Daniel Calugar, an investment professional, discusses their resilience to inflation and economic pressures and the potential difficulties of liquidity, and their inability to produce cash flow.
When considering the pros and cons of investing in precious metals, it is vital to understand their novel trading characteristics. Precious metals are unique to other investments, primarily because there is no counterparty risk. Assuming that you buy and hold real metal, rather than a precious metal exchange-traded fund (ETF) asset, the metal is no one else’s liability. There is no paper contract or intermediary needed to make you whole, and they don’t require the backing of any bank or government. They are highly portable and can be traded virtually anywhere.
On the other hand, there are additional risks and costs associated with real precious metal ownership. The most commonly cited cons for precious metals are the costs of transporting and storing them along with the risk of loss or theft. They are, after all, a physical asset and require care and protection consistent with their value.
Gold and other precious metals are generally considered an essential part of any investment portfolio because they provide unparalleled resiliency. During times of economic instability, precious metals offer stability to a portfolio that may otherwise experience downward pressure. Gold has been traded as a monetary instrument for over 3,000 years, and its value has never dropped to zero. Many investors use precious metals as a hedge against market volatility.
Precious metals are not as liquid as many other investment assets. Some states dictate by law that gold and silver be recognized as legal tender; in some unusual circumstances, you might be able to barter them, but generally, you will need to convert them to currency before making a purchase. This process may take time, so plan ahead. Turn to stocks and bonds for the benefits of liquidity and precious metals for stability and resiliency.
Precious metals should not be thought of as a cash flow producing tool. Gold and silver are intended to be used as money and a store of value. They don’t pay interest or provide income. Their value is only realized when they are sold. They are a hedge against a crisis because they store value well and are portable.
About Daniel Calugar
Daniel Calugar is a data-driven investor with an academic and professional background in computer science, business, and law. He developed a passion for investing due to frequent interaction with investment professionals who serviced his legal clients’ investment needs. As a tax partner at the Atlanta law firm of Hansell & Post and the global law firm of Jones Day, he incorporated his partnership interest to set up and serve as trustee for his tax-qualified profit-sharing plan. Calugar utilized his technical skillset to design computer programs that would help him make more effective investment decisions. When Dan is not working, he enjoys spending time working out and being with friends and family. As a pilot with over 2000 hours of single-pilot experience flying business jets, he enjoys flying volunteer flights for Angel Flight.