2394.88
44.96
29.07
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986.95
2.53
1070.9
-3.99
04/15/2024 05:59:30 PM

Introduction to Precious Metals Investing

Posted on March 19, 2024

Welcome to Buy Gold and Silver Coins

As our name implies, we want to help you to buy gold and silver coins. However, investing in precious metals goes far beyond getting gold and silver coins in your pocket. It can be a profitable hobby, side hustle, or new passion for those who take the plunge.

The first thing to do, though, is learn all the different elements of it. The page below will open your eyes to the world of precious metals investing.

What makes metals “precious”?

Everyone knows that gold, silver, platinum, palladium, and even copper are valuable metals. However, you may not know why these metals are considered more precious than others.

 

The first reason is probably the most obvious – they look pretty. Gold and silver each bear their own signature colors and are extremely shiny. For the most part, everyone knows these metals when they see them.

The second reason is related but less-known. These metals have unique properties that other metals do not possess. 

For instance, gold is quite soft and is easy to make into other objects, like jewelry or coins. Gold is also corrosion-free, so it doesn’t lose its luster easily, and its density makes it feel uncommonly “heavy” to us.

Silver is also quite malleable and resistant to corrosion. Thus, silver makes for excellent jewelry, coins, and other objects – and has done so for thousands of years. Silver also bears widespread industrial applications due to its unrivaled electrical conductivity. Modern life as we know it could not exist without silver.

Why is bullion important?

In case you’re wondering, bullion is a quite important piece of the precious metals industry. It is a way to store the metals in bulk. Unless a precious metal becomes a coin or piece of jewelry, it retains its underlying value associated with the metal itself regardless of the shape it takes.

 

Why are precious metals worth investment?

Besides their aesthetic and elemental properties, precious metals remain perennial investment vehicles because they are steadfast stores of value. No matter how long you hold the metal, it will always be worth something

However, there has never been a more prudent time to invest in precious metals. With all currencies, including the US dollar, subject to floating exchange rates, precious metals are a literal rock in the storm.

How did we get here?

It wasn’t always this way. Beginning in 1792, the United States pegged the value of dollars directly to quantities of gold. From a consumer point of view, it meant that Americans could readily exchange their dollars for gold, and vice versa.

This relationship between our currency and gold was known as the “gold standard,” although the country didn’t fully agree about which metal to use until 1900. Until Pres. McKinley signed the Gold Standard Act of 1900, various people in the country had engaged in more than a century of disagreement about whether to tie the value of a dollar to gold or silver.

The problem, though, was that this rigid system did not allow politicians to do what they most like to do – spend a lot of money. Leaders on both sides of the aisle had big plans, and the gold standard cramped their style.

FDR fires the first shot

No President felt this particular pinch more than Franklin Roosevelt. FDR, desperate to pull the US out of the Great Depression, concluded that the answer would be the New Deal – a series of government programs and initiatives to give financial stability and security to the ailing people of the country.

It was a noble sentiment, but all those programs cost a lot of money, and the gold standard interfered with FDR’s plan to print the money he needed. He knew that people would simply trade their dollars for gold and sit tight, causing immediate inflation and removing the effect of the spending. 

So, he issued Executive Order 6260 in 1933, which effectively criminalized private ownership of large quantities of gold. A similar and subsequent executive order did the same thing for silver owners. In both cases, Americans were directed to exchange their gold and silver at a designated rate for dollars, or face imprisonment. 

However, after World War II, the gold standard lived on as a muted version of itself under the Bretton Woods Agreement. The agreement allowed most of the world’s other powers to peg their own currencies to the US dollar, exchange their currencies at said rate, and then exchange their dollars for gold at FDR’s 1933 rate.

Nixon cuts the final tether

This agreement lasted until the Nixon presidency. Nixon perceived that all of this maneuvering and dealmaking had a net inflationary effect on the US dollar. He was right about that, but he also determined that the answer would be to close the exchange window for foreign countries to receive gold from the US at prescribed rates. 

This action, along with other protectionist policies that Nixon implemented, severed the tie between the dollar and gold. The dollar’s value thus began to float and derive its value from its relationship to other currencies only.

Why does all this history matter to us?

In short, it matters because gold, silver, and the rest of the bunch didn’t just vanish when the dollar abandoned ship. In fact, they quickly became ports in the storm against rising inflation due to the fact that there are more dollars available each year, but not necessarily more precious metals.

So, you can thank FDR, Richard Nixon, and all subsequent policymakers for the high prices we see for precious metals these days. Gold, in particular, is regularly trading at or near record highs. 

Unless any future leaders begin rumbling about reducing the money supply, there’s no reason to assume the escalation of precious metal value will stop. So long as policymakers are content to print money to fund their desires, owners of gold, silver, and other metals should only see their portfolios increase in value.