Ask the expert: Should I buy silver for my portfolio?
August 04, 2011
Q: Do you recommend silver bullion for a portfolio?
A: Buying silver for a portfolio is an interesting suggestion, because with gold prices having run up so wildly, it may seem worth looking into whether silver might be a more reasonably-priced alternative. It turns out though, that silver has been riding much the same speculative wave as gold over the past decade. Spot silver prices increased roughly ten-fold from 2001 to 2011.
People tend to buy gold and silver as a hedge - against inflation, or the notion of a world-wide catastrophe. If you think it through though, you may find reason to question whether either metal really has the characteristics of a true hedge against those outcomes. Consider the following:
- As an inflation hedge, do gold and silver really represent the characteristics that drive inflation? They are not tied to energy, food, construction materials, or labor costs. In other words, they types of real-world inflation that can affect you could easily soar while leaving gold and silver behind.
- Will gold and silver retain value in a global financial collapse? It's hard to imagine that commodities that have been so driven by financial speculation will retain their value in a financial meltdown. Also, if you are buying futures contracts or various securities linked to gold and silver, as opposed to possessing those metals yourself, you are exposed to the same financial system risks as you would be if you owned stocks and bonds.
With that being said, precious metals may have a place in a well-diversified portfolio, but only as a relatively small percentage. Just remember that they produce absolutely no income. If prices level off, or decline, that lack of income will make even today's low rates on savings accounts, CDs, and money market accounts start to look attractive again.
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