Why Should I Diversify My Precious Metals Holdings?

Why Should I Diversify My Precious Metals Holdings?

Why Should I Diversify My Precious Metals Holdings?

August 5, 2010 88 view(s)

You’ve already seen why adding precious metals—either through rare gold coins, silver coins, platinum coins or a Precious Metal IRA—is a smart move. This diversifies your portfolio, protects you against inflation and creates a hedge against times of economic uncertainty.

But does the same principle apply within your precious metals holdings? Of course it does. You would never think of creating a 401(k) with only one stock and you wouldn’t want to invest in only one type of government bond. So when you’re looking at your holdings of gold, silver, and platinum, you’ll want to make sure you have diversity there.

Diversify the Type of Metals

The first thing you should look at is what the makeup of your portfolio is in terms of the different metals available. The prices of gold, silver, and platinum are independent of each other, so just having one type of precious metal in your collection or Precious Metal IRA isn’t enough.

Perhaps the price of silver falls one year while the price of gold increases. Or maybe the price of both increases, but gold increases at ten percent while silver increases at fifteen percent. As we’ve seen from the history of the Silver American Eagle, outside forces can have a significant impact on the price of one precious metal while leaving the others untouched. Diversifying the amount of each precious metal in your portfolio helps reduce risk.

Diversifying Within A Single Type of Metal

So, you’ve begun to diversify your precious metals holdings and now you have gold, silver and platinum. That’s all you need to do, right?

Well, not quite. You will also want to look at diversifying even within a single type of metal.

If your only precious metals investment is a Precious Metal IRA you will have fewer choices as the coins you can invest in are restricted by purity. This rules out many rare coins and even some modern American coins. You can still diversify, however, by choosing coins from different countries or by increasing the variety of coin years and weights.

This type of diversification is especially important if you are a collector of rare coins. Much like how silver and gold rise and fall independently, the price of rare coins will so change price independently of each other. Although when the price of gold overall rises or falls, it will have a similar effect on all of the coins in your collection.

In fact, the demand for specific coins will make it so that a $1 Liberty Head might be falling in value while a $4 Stella is increasing.

If you’d like to learn more about diversifying your precious metals portfolio, contact the United States Gold Bureau today. We can give you information about our current inventory and prices and help you come to a decision.