Why is investing in precious metals and natural resources a good idea?
Commodities – metals, oil etc – have had a good run lately, mostly because the world’s developing economies (esp China and India) have increased demand while supply isn’t increasing to match it. However, by the time you can see a trend in the market, it’s usually close to over – there’s no guarantee returns in the future will come even close to those of the past. Commodities are a specialist product and can form a useful part of a balanced portfolio: but I wouldn’t want to advise anyone to invest the bulk of their savings – money they can’t afford to lose, or might need to take out of the market in a hurry – in such a volatile sector. That goes double if they were inexperienced in trading, and unable to trade out quickly and cost-effectively. You might make a packet, but it’s as likely you’d lose your shirt. If it was a certain winner, smarter and richer people than you would already be piling in!
If you are not an expert, don’t do it. In both cases, it is speculative. In both cases, the commissions you have to pay are very high. If you buy gold, you may have to pay a 3% per cent commission and another 3% commission to sell. Some people buy gold as a hedge against inflation or a down turn in the stock market, but you have to understand what you are doing and why. With natural resources the supply and demand are volatile. Look at the price of crude oil as an example. It can have a 50% swing in value within a year. New supplies are always being found and the demand is always changing. Because there was a mild winter in the US in 2005/06, there is an abundance of natural gas. The retail price may drop, this winter, by as much as 25%. Some gas hedge funds have already experienced catastrophic losses for investors. One fund may go bankrupt in the immediate future, and investors will lose everything. Bank CD’s are the safest. You know what interest you are getting, and the principal i
Investing in precious metals can be a good move because they’re hard assets, like real estate, or anything physical, really. Hard assets are typically more valuable than paper assets like stocks and bonds bc if the economy crashes, the dollar, your bonds and your stocks may become worthless, but that plot of land is still there, and can be farmed, built on, mined, etc. However, precious metals are typically only good at preserving buying power, they don’t produce wealth over long periods of time. Realistically, the only way you’d make money through metals is by holding them through a burst in price, and then selling. If you bought an ounce of gold in 1802, it would’ve been about $20. When gold was worth over $700, the return on that ounce was less than 2%. If you bought $20 of stocks and reinvested dividends, you’d probably have about $200 million. I got those numbers from a columnist on Yahoo Finance, Jeremy Siegel. So, buying precious metals can be good for preserving buying power, b
