Central banks are buying them and so should you — precious metals

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  1. Conclusion

In the first part of this series on investment ideas, I told you about my rotation into the dollar. However, I expect the dollar to lose its strength within the next year or even months. So how do I protect myself from depreciating currencies? This is where tangible assets can show their strength. These include the classic investment metals gold, silver, platinum, and palladium, and these are what this article is about.

The yellow shiny stuff called gold

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I’m probably a gold bug. I think gold is beautiful. It shines, it has value, and gold doesn’t lose that value in the long run. It hasn’t for thousands of years. Gold has been seen as something valuable in all cultures around the world since the beginning of its discovery. Whether you travel to the most remote places in the world or live in our highly technological world, gold has value everywhere. Therefore, gold should also be viewed not as a short-term investment that will bring you quick profits, but as a long-term investment to preserve your wealth. In Germany, for example, there is also no tax on profits from gold sales made after a one-year holding period.

Gold has several advantages. First, it has always served as asset protection, especially against the dreaded inflation. Now, people will argue against the fact that we currently have high inflation in all industrialized countries and yet the price of gold is falling. This is because we are currently in a phase in which we are not only experiencing inflation, but also the consequences of an overly restrictive pandemic policy that has permanently weakened the economy. As a result, money is flowing into assets that are currently more trusted, including the dollar. However, I think this trust is short-lived. In the past, this effect has already occurred, and the moment the dollar collapses, gold booms. In countries like Venezuela, where inflation is out of control, people are now using gold to pay for their purchases.

In addition, many countries and most central banks have been buying gold since 2017. However, they are not only buying this in the form of paper gold, but they are buying gold in the physical form and storing it. Likewise, the BIS (Bank for International Settlements) sees gold as the №1 asset.

To me, these are the signs of a new monetary system. But more about that in another Medium article.

Silver technology metal, precious metal or means of payment… it depends

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With silver, I’m not sure myself what to classify it as. As a rule, it is called a precious metal. On the one hand, it is a noble metal, which also historically has always had its value. In this context, it was also used as a means of payment. Compared to gold, it also has the advantage that it is available in smaller amounts of value. Silver would therefore be better suited in everyday life or in times of crisis to pay for purchases in the supermarket.

On the other hand, silver is also needed for technologies. For example, I know silver from switchgear technology. Silver is needed here as a basic material for the contacts.

However, it is precisely this diversity that makes silver interesting for every economic situation and therefore belongs in every precious metal portfolio. Moreover, silver is currently cheap when measured against the price of gold. The rule of thumb says that a gold/silver ratio of over 60 means that silver is cheap relative to gold. However, if the ratio is below 40, silver is expensive relative to gold. As of the end of September, the ratio is around 88, so silver is very cheap.

Platinum

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Platinum is a less popular precious metal than gold and silver. As with silver, platinum also has a technological use. Probably the best-known application is in catalytic converters. Therefore, the price is also very much determined by the demand in the automotive sector. Platinum is also needed in apparatuses for the chemical analysis of other substances, as well as in medical technology. Very promising for the future is its use in fuel cells to increase efficiency.

The price of platinum has suffered greatly in recent years and could not keep up with gold and silver. However, this does not mean that the platinum price will continue to trend downwards steadily. I think the technological use cases speak for themselves.

Palladium

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Palladium has similar properties to platinum and is therefore also used for catalytic converters, medical technology and as a contact material in electrical components. This means that in this case, too, the price of palladium is dependent on demand from industry.

For both metals it is therefore true that in the event of a recession the demand and therefore the price of these two metals will fall. Although both metals are also used for jewellery, this is small compared to the amount needed for industrial applications and cannot compensate for such a price drop. Therefore, in my opinion, both metals should not be weighted too heavily in a precious metal portfolio and should also be considered as substitutes.

Conclusion

In conclusion, what can be said about precious metals is that whether we are in an inflationary phase or in an upswing phase, a diversification in precious metals always makes sense in my opinion. Especially for gold and silver, you can pretty much assume that they are not going to be replaced by other metals. When you invest in a company, you don’t know if it will still exist in 40 years. With gold and silver, you know that you can still bequeath it to your children and thus ensure wealth preservation over generations.

I appreciate your feedback, whether you agree with me or not, so please comment, highlight or clap.

If you’re interested in the books I’m reading, check them out here (I update the list regularly): Reading Recommendations

Disclaimer: The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this text is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. The author does not guarantee any particular outcome.