Why is investing in precious metals and natural resources a good idea?

Question

I have been advised to buy shares in precious metals and natural resources as opposed to putting my savings into a high interest bank account. I was just wondering if anyone else had this advice and what they thought of it. is it a good idea and why?

Answer 1

Because it can make you money!

Answer 2

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 is insured by the FDIC.

Answer 3

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!

Answer 4

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, but if you want to gain wealth, you have to take more risk by going into stocks.

Answer 5

Diversification is a great idea, but jumping into an area after its had a big run is foolish. Since all areas of the economy are cyclical, the best strategy is buy when its out of favor, sell when the demand is highest. If you do it the other way around, you're going to loose money or, at best, break even. Large Cap stocks have underperformed for several years now. (The General Electrics and IBM's of the world ). It may be time to take a closer look at those. Oil, gold, etc seems to have peaked.

Answer 6

investing in precious metals is good for sure as their demand would keep increasing with the decrease in their availability.
Further, with the increasing industrialization the need for natural fuels would surely be on the rise. For example the rates of gold that used to be in less than 4 digits jus a decade ago are now more than 5000 to 7000 Rs.

Answer 7

shares and stock markets are highly inflated figures on paper
in tough times these will fall.I had read a report of how Asian countries have been stock piling pure gold. As in the past not so much now though All currencies were held up by the countries stock pile of gold.
http://en.wikipedia.org/wiki/digital_gold_currency
In recent times it has become a digital currency economy
opposed to a time where the currency on the street would equal the stock pile of gold

World Currency Look under history in the link
http://en.wikipedia.org/wiki/world_currency

Gold standard
http://en.wikipedia.org/wiki/gold_standard
Currency was based on the gold standard now it has become a digital currency system

Asian countries are stock piling gold bullion I believe to prepare for hard times when stock markets crash. Doom and Gloom We will see

May I suggest proffessional advise the higher the return the higher the risk

Answer 8

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/fb19f

Answer 9

Precious metals are like anything else. They make and lose you money. There are many pros and cons to investing in them. Do more research before investing. If they were fool proof everybody would invest in them and there'd be no other investments to choose from.

Answer 10

Gold is a good bet because a lot of people in India and China are getting married and so is increasing demand. I would reconmend Merrill Lynch Gold and General (Unit Trust) as a good medium term bet.

Answer 11

diversification is good, but commodities seem to be on a downturn now...maybe wait and see whether you can pick it up when the prices are lower

either that or invest in a mutual fund which trades in commodities