When equity market investment charts turn south, the promotional drums always beat a positive clamor about the merits of precious metals – some well founded, some not.
In downturns, gold remains relatively strong overall as do most other precious metals. To better understand gold’s relative psychological strength, take gold’s support base, for example; the U.S. Treasury holds about 4,578 metric tons at Fort Knox, some 368,000 standard, 400 oz. troy gold bars, about 3 percent of all the gold ever produced. The amount is second only to the Federal Reserve Bank of New York's vault in Manhattan, which holds 7,000 metric tons (7,716 tons) of gold bullion. Such official holdings tend to add to the reputation of gold as a solid investment.
Like the stock market, gold trades up or down, depending on the whims of fortune and our perception of the economy. Gold sold for about $400 an ounce in the year 2000, peaked at $1,900 in 2011-12, and was seen hovering around $1,180 in late October 2014. The one sure thing about gold and other precious metals – when other markets correct, the people who push gold for a living will inundate the media
with stories of gold as a safe haven. They are well organized and generally quite credible. Beware All that Glitters Doesn’t It’s the lesser known precious metals that may or may not have a great future as investments. American Metal Market worked hand-in-hand with the FBI and Toronto police in the 1990s to thwart Canadian boiler room telemarketers. At the time, indium was valued at $5 an ounce, but the boiler rooms sold it at $65 an ounce, actually delivering the metal in small bars. They promised the future value would be $400 and used a CNN telecast tape about indium’s use in Stealth bombers to close sales. The ruse was fraud under wire and mail fraud statutes because the boiler rooms created their own in-house markets. They created something that wasn’treal; it was a fraud, an $11 million scam. The operators fled Toronto to the Cayman Island but eventually faced jail and fines. The North American Securities Administrators Association has estimated such fraud losses exceed $100 billion a year. The irony of the indium scam: today indium’s value in the marketplace approaches $20 an ounce. One AMA story bore the headline: “Warning -- This phone call may be hazardous to your health.”
When it comes to precious metals investing, the FBI advice is: you get an offer by phone, just hang up. Gold
Obviously the people who earn a legitimate living out of precious metals are the ones you can expect to beat the promotional drums for gold, silver, platinum, palladium, rhodium, iridium, osmium, rhenium, and ruthenium. Among the gold drummers you’ll find The World Gold Council. Its 20 members are some of the world’s most powerful gold mining companies. They are headquartered
across the world and have mining operations in over 50 countries. The council stimulates demand in new and existing markets through research, insight and partnerships with leaders in investment, jewelry, industry and academia. The council works across the entire supply chain, from gold mining through to the consumer marketplace, with offices in New York, London, Shanghai, Hong Kong, Singapore, Tokyo, Mumbai, Chennai and Beijing.
Typically, your investment adviser will develop an asset allocation strategy that will consider long-term versus medium-term returns, and how gold investment products perform in positive or negative correlation with other assets. But keep in mind that the value of metals changes over time. For example, with many boiler rooms shut down, indium has been variably valued from $10 an ounce to $26 an ounce, having found a life of its own in semiconductors, liquidcrystal display (LCD) and medical imaging. Scientific American predicted in 2010 that fewer than 14 years were left of indium supplies, based on then current rates of extraction. But Indium Corporation, the largest processor ofindium, claims that, on the basis of increasing recovery yields during extraction, recovery from a wider range of base
metals (including tin, copper and other poly-metallic deposits) and new mining investments, the long-term supply of indium is sustainable, reliable and sufficient to meet increasing future demands.
Such forecast fluctuations are what make investing in precious metals both interesting and sometimes risky.
According to The Chemical Heritage Foundation, in the mid 1800s aluminum was more valuable than gold. Napoléon III's most important guests were given aluminum cutlery, while those less worthy dined with mere silver; fashionable and wealthy women wore jewelry crafted of aluminum. Refining inventions changed all that and aluminum, the most abundant element in the earth’s crust, lost its status as a precious metal.
Gold, on the other hand, offers various gold-related investment products that have different risk and return profiles, liquidity characteristics and fees. In recent years, innovation has led to products that offer greater flexibility and accessibility to investors, such as exchange-traded funds (ETFs) as well as additional risk management tools for sophisticated investors, including derivatives and structured
products. Investors can buy physical gold through coins or bars; they can buy products backed by physical gold, which offer direct exposure to the gold price; or they can buy other gold-linked products, which are directly related to the gold price but do not include ownership of gold.