Investing in Gold and Other Precious Metals

Investing in gold and precious metals

At Bradley and Co., we are invested in Gold securities and despite the recent weakness believe we are still in a bull market. Gold and other precious metals, such as silver and platinum, are limited in supply and in great demand in many forms, including money and jewelry. They’re often considered alternative assets because their prices typically are not correlated with other types of investments, such as stocks or bonds.

Gold, and to a lesser extent silver, are unusual because they’re commodities but also have been used as a medium of exchange for centuries. Though paper currency is no longer pegged to the price of gold, much of the world’s gold supply is still held in reserves in the international monetary system. Precious metals are also valued for their many scientific and industrial applications, and their prices are driven not only by supply and demand but by political and economic factors, though each metal may react differently to those factors.

Tradeoffs as an investment

Highly Volatile
Precious metals is a small sector and, as a result, prices can and often do change dramatically. This volatility creates opportunities for sizeable returns but also for dramatic losses. The three year chart below shows the October price breakout above $1000. While the selloff of the last few days is meaningful, it remains a normal pullback within a bull market. In my opinion, Gold remains in an uptrend as long as it stays above $1050 an ounce.

Economic and Political Risks
Sources of precious metals are concentrated in certain areas of the world, subjecting them to special risks that include:

• Unpredictable economic and political developments
• Increased environmental costs
• Changes in tax and mining laws
• Trade restrictions between countries

Metals markets involve specific knowledge
The fact that precious metals investments tend to move independently of other markets means that you cannot rely on your knowledge of stocks or bonds to be a successful investor in gold or precious metals. Depending on how you choose to invest in them, understanding how those markets work may require extra attention on your part as well as experienced advice.