What to know about investing in precious metals

Investing in precious metals, such as gold, silver, platinum and palladium, has long been a strategy for those seeking to diversify their portfolios and protect against economic uncertainty.

You may have heard about investors buying gold coins, silver bars or shares in mining companies due to precious metals' reputation as a "safe haven" during times of inflation, market volatility and geopolitical instability. These assets are valued for their tangible nature, historical role as stores of value and their ability to hedge against the weakening of currencies.

Whether as part of a broader investment strategy or a response to specific economic concerns, precious metals offer unique opportunities and considerations for today's investors.

Precious metals are rare, naturally occurring elements such as gold, silver, platinum and palladium. They're valued for their beauty, durability and utility in industries like jewelry, technology and finance. Historically, they have been used as currency and a store of wealth, dating back thousands of years to ancient civilizations that prized their scarcity and intrinsic value.

The appeal of precious metals endures today as a hedge against inflation and economic uncertainty, making them a cornerstone in both investment portfolios and industrial applications. The rarity and consistent demand for precious metals contribute to their long-term perception as reliable and valuable assets.

Precious metals are valued for their rarity and unique properties. Here is an overview of investing in gold, silver and other types of precious metals, including their uses and factors that can influence their prices.

• Uses: Gold is the most recognized precious metal and has been used for thousands of years in currency, jewelry, and religious artifacts. Today, it also is used in electronics due to its excellent conductivity and resistance to corrosion.
• Price drivers: Gold prices are influenced by factors such as inflation, currency values (especially the U.S. dollar), geopolitical uncertainty and central bank policies.
• Investment appeal: Its reputation as a "safe haven" asset makes it a popular choice during economic downturns.

• Uses: Known as the "every man's gold," silver has diverse applications in jewelry, tableware and industrial uses like solar panels, electronics and medical devices due to its antimicrobial properties.
• Price drivers: Silver prices are highly volatile, influenced by industrial demand, global economic conditions and its dual role as an industrial and investment metal.
• Investment appeal: Silver is more affordable than gold, making it accessible to smaller investors. Its industrial uses provide additional growth potential.

• Uses: Platinum is a dense, durable metal primarily used in catalytic converters for automobiles as well as in jewelry and certain medical devices.
• Price drivers: Its price is affected by automotive industry demand, mining supplies (primarily from South Africa and Russia) and overall economic conditions.
• Investment appeal: Rarer than gold, platinum can be a strong long-term investment, though its industrial dependence makes it more cyclical.

• Uses: Palladium is primarily used in catalytic converters for gasoline engines and has growing applications in electronics and hydrogen energy technology.
• Price drivers: Prices are influenced by demand from the automotive sector, supply constraints and technological developments in clean energy.
• Investment appeal: Palladium's rising industrial use and limited supply often make it more expensive than platinum, attracting investors interested in niche opportunities.

• Rhodium: Used in catalytic converters, rhodium is extremely rare and expensive, appealing primarily to industrial users rather than retail investors.
• Iridium and osmium: Rarely used for investment, these metals have niche applications in scientific instruments and industrial processes.
• Copper (industrial): While not a precious metal, copper is worth considering due to its essential role in electronics and renewable energy infrastructure.

Investing in precious metals, such as gold and silver, can offer unique advantages and disadvantages compared to traditional assets like stocks and bonds. Below is an outline of the key benefits and potential drawbacks to help investors assess whether metals align with their financial goals.

• Hedge against inflation. Precious metals, especially gold, tend to retain value during periods of inflation, providing a safeguard against currency devaluation.
• Safe haven during economic uncertainty. Metals often are seen as a stable store of value in times of geopolitical instability, stock market downturns, or recessions.
• Portfolio diversification. Adding precious metals can reduce overall portfolio risk because their performance often has a low or negative correlation with stocks and bonds.
• Tangible asset. Unlike paper investments, precious metals are physical assets that can be held and stored, which appeals to some investors as a form of security.
• High liquidity for gold and silver. These metals are widely traded and can be easily converted into cash globally.

• Lack of passive income. Unlike stocks that pay dividends or bonds that generate interest, precious metals do not produce income; returns depend solely on price appreciation.
• Storage and insurance costs. Physical metals require secure storage, which can incur additional expenses and risks.
• Volatility and speculation. Prices of metals like silver and platinum can be highly volatile, influenced by industrial demand and speculative trading.
• Opportunity cost. Money invested in metals might yield better returns if placed in other asset classes, such as equities during a bull market.
• Limited long-term growth. Precious metals generally offer lower long-term returns compared to stocks, which benefit from corporate growth and reinvested earnings.

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Precious metals are best suited for investors looking to hedge against risks like inflation, currency instability or economic crises. They also are appealing to those who value portfolio diversification or prefer the security of tangible assets. For instance:

• Conservative investors. Metals can provide a stabilizing influence in a balanced portfolio.
• Risk-averse investors. Gold and silver are popular among those who prioritize capital preservation over aggressive growth.
• Long-term planners. Investors concerned about long-term economic trends, such as potential currency devaluation, often allocate a portion of their portfolio to metals.

• Younger, long-term growth investors. Investors with a long time horizon or growth objective might prefer stocks for their potential to generate higher returns.
• Income investors with liquidity needs. Individuals with a passive income objective or those unwilling to manage the complexities of storage may find precious metals less attractive.

Investing in precious metals can be approached in a variety of ways, from owning physical metals to leveraging financial instruments like mutual funds, exchange-traded funds (ETFs) and futures. These choices are typically offered through online discount brokerage firms, fund companies and some banks. Here are actionable strategies for beginners and experienced investors alike:

You can purchase gold, silver, platinum, palladium and other metals in the form of bars, coins or jewelry from reputable dealers or local coin shops. Ensure secure storage through safes or vaults, and be aware of premiums above the spot price and potential liquidity issues.

ETFs track the price of a metal or a basket of metals, offering an easy and liquid way to invest. You can purchase these on the market. Keep in mind that ETFs don't provide ownership of physical metal, but you'll avoid storage costs.

Within your portfolio, you can invest in professionally managed funds that focus on precious metals-related assets like mining stocks and metal-backed securities. Consider that investment fees can erode your returns, so be sure to compare expense ratios.

Rather than investing directly in the metals, you can buy shares in stocks of companies that mine metals. As with any other company vying to stay profitable in the economy, realize that stock in mining companies can be volatile and are subject to operational risks.

You also can speculate on the future price of a metal by purchasing a futures contract that obligates you to buy or sell at a specific price and date. With options, you buy the right (but not the obligation) to purchase or sell metals at a predetermined price within a set period. Futures and options are complex and best suited for experienced traders with advanced knowledge and significant risk tolerance.

Determining the right amount of precious metals for your portfolio depends on your financial goals, risk tolerance and investment timeline.

If you're a conservative investor, you might consider allocating 5%-10% of your portfolio to precious metals for diversification purposes. This is often sufficient to act as a hedge against inflation or economic instability. Moderate to aggressive investors may want to go up to 10%-20%, especially if you have concerns about long-term currency devaluation or want to diversify further.

There are no one size fits all allocation ranges. The key is to limit allocations to specialty asset classes to a small portion of your portfolio. Avoid taking very large bets on the advice of reports regarding the potential collapse of the U.S. dollar or other doomsday scenarios. A balanced portfolio is generally best.

Assess these factors about your investing personality and circumstances when considering investing in precious metals:

• Risk tolerance. Precious metals are generally less volatile than stocks but can fluctuate significantly.
• Short-term goals. If you're hedging against immediate inflation or currency risks, a smaller allocation (5%-10%) in liquid forms like ETFs or physical gold may make sense.
• Long-term goals. Investors concerned with wealth preservation over decades may choose higher allocations, especially in physical metals, to counterbalance economic downturns.
• Diversification needs. Precious metals are a low-correlated asset class, meaning they don't move in tandem with stocks and bonds, making them a strategic diversification tool.
• Liquidity needs. If you may need quick access to cash, limit your investment in less liquid forms like physical metals or long-term funds.
• Costs. Storage fees for physical metals and management fees for ETFs or mutual funds should factor into your decision.
• Inflation sensitivity. Gold and silver tend to perform well during inflationary periods, but they may underperform when interest rates are high or the economy is growing robustly.

While precious metals can serve a strategic role in safeguarding wealth and diversifying a portfolio, they are not a one-size-fits-all investment. Understanding your financial goals, risk tolerance and market outlook is essential to determining whether these assets are a smart addition to your investment strategy.

Connecting with a Thrivent financial advisor can help you figure out your suitability and need for precious metals and help with your investment decisions.