Why people buy precious metals during an economic downturn

Guest Author blog January 6, 2021

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Image courtesy of Reuters/Michael Dalder

Why people buy precious metals during an economic downturn

Gold has often been known as a safe haven during economic turmoil. It’s simple. When the economy takes a turn, people pull out and invest in the asset and other precious metals. However, many might wonder why this happens. What makes precious metals the safe place to be during an economic downturn? In this post, we’ll go over just that.

Stability

When the economy takes a hit, people flock toward stability. Considering gold doesn’t fluctuate nearly as much as the stock market, it’s the stable place to be. Both gold and silver have a long investment history. They will always be in demand to some degree.

That and these assets don’t really experience inflation. In fact, during the last few recessions, gold increased in price three out of four times. Plus, silver is applied to so many industries, from automobiles to electronics. If there are any reasons to buy silver, it’s how applicable the metal is.

Diversification

Portfolio diversification is always the name of the game for investors. This goes double during an economic downturn. Considering the aforementioned stability of precious metals, it should come as no surprise that investors diversify into these assets.

Control

In an economic recession, we’re generally reliant on the government to make a decision to fix the problem. With traditional banking, we’re relying on said bank to keep our funds safe. Basically, either way, we’re leaving control of our funds in the hands of someone else.

Investing in precious metals, assuming you do so physically, allows investors to circumvent that control. This way, you can literally hold your gold bars and silver coins in your hands. Banks can’t seize control of the funds sitting in a vault at your house.

That control, especially in a time of economic strain, is significant for many investors.

Options

Not only can you purchase physical precious metals, but you also have the choice of futures and other derivatives. If the economy is failing, investors will appreciate that futures give them the option to predict gold prices. That, and you can enter a futures contract at a low cost, which many might appreciate while the economy flubs.

Plus, if the economy isn’t performing well, it can be much easier to predict that precious metals will go up. That certainty might lend more people to invest in futures and other options than normally.

Lack of Manipulation

While the traditional economy can be manipulated by printing money, fake money, etc., there’s no such thing as manipulating precious metals. It’s impossible to formulate gold and other precious metals out of nothing. The only way to add to supply is to, well, find it.

That adds to the level of stability that many precious metals enjoy, especially when it comes to economic strain. Investors generally appreciate a level playing field.

What Precious Metals Should I Invest In During a Recession?

Now that you’re aware of why people invest in precious metals during a recession, you might be wondering which are the best to invest in.

Gold

Gold is the most popular precious metal in the world. It’s the most used safe haven asset due to its stability and often performs quite well in an economic recession.

Silver

Silver is more volatile than gold, but it’s still a popular investment choice due to its use in electronics, automobiles, and other industries. 

Platinum

Platinum is rarer than gold and most other precious metals. However, it is a bit of a mix between gold and silver. This is because the metal is as rare as the former but still used in industrial materials like the latter.

Of course, it’s important to do your own research before investing in any precious metal. While many of these perform well during a recession, these markets are still unpredictable.

 

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