When an individual compares all the investment markets that are out there in the financial system, they may be surprised to find that there is one market that is unlike any other, and that is the precious metal market. Without doubt, the precious metal market is unique and unlike commodity markets that are in general ‘gambling dens’ that is filled with winners and losers – literally.
One major reason that the precious metal market is significantly different when compared to other markets is due to the fact that when investors invest in gold or silver – the majority of them do it for the long haul and as a divestment vector for their total portfolio. When an individual decides to buy silver bullion for example, the chances are that that silver bullion would be worth at least 20 % more than it was worth during purchase.
This 20 % would in general be the amount of value that the currency he or she bought it with had lost over that decade. This goes for any precious metal for that matter in general, regardless if you buy silver bullion or gold bullion, the point is, in general, precious metals retain the purchasing power of money in the long run. One reason for this is due to the fact that investors who end up investing in gold or silver do it for the long haul and they rarely resort to selling their stock of precious metals unless it is really necessary.
If we were to look at how the commodity markets work, it will become evident that the precious metal market holds its own. Unlike other commodities where investors and market players buy and sell constantly with the hopes of making daily short term gains, people who buy physical gold or silver hold on to it until the time is actually right. However, one must consider the fact that financial institutions have made it possible for paper gold to be traded in a manner that general commodities are traded.
These are offered in the form of ETFs and other gold related investments that are associated with a certain amount of gold that the investor buys ‘on paper’, if at all the owner of the ‘paper gold’ decides to redeem the gold, he will be offered the cash equivalent of the amount of gold stated in his claim.
An area of concern that has been weighing down on precious metal bugs is the fact that although these paper or electronic gold derivatives are not directly related to the physical gold market, it does however play a role in price determination of precious metals traded. When they sell, and the demand is low, it naturally affects the prices of physical gold as well.
It was due to this phenomenon that when the Greek bailout talks were in progress, the prices of precious metals held steady, as people were buying physical silver and gold, owners of electronic and paper gold were selling.