Why investors are drawn to precious metals

Both gold and silver have timeless benefits for investors. Thaddeus Robertson/Getty Images

As 2024 comes to a close, the U.S. economy continues to navigate choppy waters. Inflation, while down from its peak, still hovers at 2.44%. The Federal Reserve has maintained high interest rates at a range of 5.25% to 5.50% to keep economic pressures in check. In this uncertain climate, more investors are turning to precious metals as a safe haven.

The precious metals market has seen unprecedented growth this year. Gold prices have shattered records, reaching an all-time high of over $2,700 per ounce in October. But it's not just gold — silver and platinum have also grabbed attention, with demand surging across the board.

We asked three financial experts to weigh in on this trend. Their insights tell us why these assets are becoming so attractive and how they might fit into a well-rounded investment strategy.

Learn how precious metals could boost your portfolio here.

Why investors are drawn to precious metals

"Precious metals provide a hedge against market volatility, particularly when conventional assets are [underperforming]," explains Steven Kibbel, certified financial planner and senior editor at InternationalMoneyTransfer.com. This stability during economic turmoil is a key factor driving investors toward gold, silver and platinum.

The industrial applications of these metals add another layer of appeal. For instance, "Gold is used in medical technology [for non-allergenic implants] and in aerospace to protect against radiation and heat," notes David Weild, chairman and CEO of Weild & Co. He adds that silver is essential in solar panels and nuclear reactors, while platinum finds applications in the automotive, jewelry and oil industries.

These alternative assets can also preserve wealth long-term. "The risk is low with gold, especially when [you compare it] to other derivative investments," says Brett Elliott, director of marketing at American Precious Metals Exchange (APMEX).

Besides these practical use cases, our experts shed light on three other big reasons investors are drawn to precious metals:

A hedge against inflation

With inflation still above the Federal Reserve's 2% target, investors are looking to precious metals as a hedge against potential currency devaluation.

"As inflation increases, the value of precious metals holds steady," says Kibbel. This stability makes gold, silver and other precious metals appealing alternatives to traditional currency-backed investments. While the dollar's buying power fluctuates, an ounce of gold tends to maintain its value over time.

Protect your portfolio from inflation with gold now.

Portfolio diversification

Expanding on Kibbel's insights, Weild emphasizes, "Precious metals are a form of inflation-resistant hard assets." He places them in the same category as real estate and commodities, highlighting their role in diversifying portfolios beyond stocks and bonds.

But how much should you invest? Weild says it depends on your risk tolerance and economic outlook. Traditionally, financial advisors have recommended a 5% to 10% allocation to precious metals.

Tangible assets in uncertain times

While digital investments have fluctuated wildly, physical gold and silver remain steadfast. This stability isn't just about monetary value — it's also psychological.

"Investors have more control over their assets when they own actual metals, which can be handled and stored, as opposed to stocks," explains Kibbel. "[During market turbulence], clients who had physical gold found solace knowing their [precious metal] held its value while other investments [performed poorly]."

His observation underscores how many investors find comfort and security in tangible assets — especially during periods of economic uncertainty.

How to start investing in precious metals

You have several options when adding precious metals to your portfolio. Each method has its advantages and challenges:

• Physical metals involve buying actual platinum, silver or gold bars and coins. "Physical gold is considered safe as it carries no contractual risk," says Elliott. However, it requires secure storage and can be less liquid than other options.
• Exchange-traded funds (ETFs) track previous precious metal prices without requiring physical ownership. "ETFs offer liquidity and exposure to precious metals without the trouble of storage," says Kibbel. However, with this option, you don't physically possess the asset.
• Mining stocks are investments in companies that extract precious metals. "Mining stocks are more volatile and exposed to a wider range of market risks, but they may yield larger rewards if the firm performs well," Kibbel cautions.

The best investment choice depends on your goals and risk appetite. For example, "ETFs are highly accessible and typically very liquid," Elliott points out. So, these could be ideal if you only want to invest in metals for a short period. On the other hand, physical metals might be better if you're seeking long-term stability.

The bottom line

Some experts suggest now might be an opportune time for gold investments, given the potential for further price increases. But ultimately, your investment approach should align with your broader financial picture and comfort with market fluctuations. Before deciding, research and consult a financial advisor to determine if adding precious metals now makes sense for your portfolio.

Learn more about investing in gold here.