Investing in gold and silver against inflation: when it pays off and how to do it

Precious metals, especially gold, have been a traditional safe haven asset to protect themselves from times of uncertainty and inflation like the present.

Thomas Osborne
Thomas Osborne
01 March 2023 Wednesday 21:35
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Investing in gold and silver against inflation: when it pays off and how to do it

Precious metals, especially gold, have been a traditional safe haven asset to protect themselves from times of uncertainty and inflation like the present. However, their prices can suffer intense fluctuations. In the case of gold, for example, they skyrocketed with the outbreak of the pandemic and the start of the war in Ukraine, but then they plummeted again between March and October of last year. For all these reasons, many savers wonder if investing in precise metals is a good strategy for their money to appreciate.

For the investor who wants to obtain short-term returns -one year ahead-, "we do not recommend this type of investment," says Víctor Alvargonzález, independent advisor and founder of NextepFinance. The reason is the behavior of its price in recent years, since the price of an ounce is currently trading 11% below the maximum reached at the beginning of August 2020, of $2,067.

With inflation and the war in the background, some analysts suggested that new highs would be reached this year, but so far this has not been the case. Although the price began to rise in November and an ounce of gold reached $1,900 in January, the trend reversed the following month. "Gold is not an asset to speculate on, but rather a more strategic investment," says Javier Molina, market analyst at eToro. And he clarifies that betting on this precious metal "generates some diversification in the portfolio", since the evolution of its price is usually different from that of other assets. Thus, while the main stock market indices suffered losses last year, the price of the precious metal ended practically at the same level as at the end of 2021.

The analyst recommends this type of investment for periods of losses in equities, although he only advises investing a small percentage in the yellow metal. A similar recommendation is offered by Alvargonzález, who believes that this investment is indicated above all for long-term investors with diversified assets. In these cases, he points out, "it is good to have a percentage in gold, which would amount to around 5% of the portfolio." "And when it goes down a lot, buy," he adds. Historically, those who have bet on the precious metal as a safe haven asset have obtained attractive returns. Specifically, in the last five years its price has risen by 36%.

However, for a type of investor who intends to obtain short-term returns, he advises making savings profitable through the acquisition of bonds and treasury bills, such as the North American ones, "which are giving a 5% return and is the safest asset in the world," he says. In the case of the three-year Spanish bond, the yield will be lower, 3.25%, although much more attractive than what most deposits still offer.

On the other hand, Molina advises that there are many differences between the main investment precious metals. In the case of silver, for example, its price is "closely linked" to world economic activity because it is used more in industry, due to its greater usability in the production of electronic devices and other products such as vehicles and solar panels. Therefore, its volatility is greater than that of gold. "If there is a recession, it tends to suffer more," the analyst points out. At the moment, for example, it is in full correction, with a price of $20 an ounce, about 25% less than the highs at the beginning of 2021.

In addition to gold and silver, there are other investment-attractive precious metals such as platinum and palladium. And there are two great ways to start investing in them. The first is through the physical purchase of coins and bars, which can be purchased in installments. "A small investor can do it by buying reasonably affordable products," says Raquel Herrero, operations analyst at Coininvest. For example, buying a one gram ingot costs about 65 euros.

There is also the possibility of making money profitable through investment firms that invest in mines and obtain benefits either from extracting or buying the metal at low prices. An option, adds Herrero, "more volatile and intangible" than in the first case.