Why Do We Buy Metals?

The last few months have been rather dull in the metal markets. Prices have been trading sideways like they did before this commodity bull market began. Most metals investors that I come in contact with on a daily basis are long term investors who do not worry too much about the fluctuations and volatility of the metals markets. Whether you own gold, silver or strategic metals, all have good reasons to be included in your portfolio.

Why do we own gold and silver? The governments of the world are not showing restraint. It seems every week a different country is in need of a bailout. After 2008 the world expected that the banking system would pay for its transgressions against the people of the world. This has failed to materialize. Very little has changed since 2008. The same mistakes that were made before are being repeated on a larger scale. National deficits around the world are increasing at a rapid pace. The only action politicians and bankers take is to inflate the money supply to continue growth.  There is a good chance gold will once again be considered a tier 1 asset by the banking system. This means that instead of having a 50% weighting as a bank asset, it will have a 100% weighting. This is very bullish for gold and by proxy silver. The US Dollar may be strong now, but when the world stabilizes what will happen once investors return their assets to other currencies or countries? What will happen to all this excess liquidity that the US Federal Reserve has created? The word that comes to mind is inflation. It will not be a good time to hold Dollars.

Why do we own strategic metals like indium, gallium and tantalum? These metals are the backbone of the smartphone, solar systems, electric vehicles, computers and the defense industry. Almost every technology product you come in contact with on a daily basis has strategic metal components. These metals are 95% controlled by China. This has put China in the driver seat as far as production, refining and exporting of these metals.  China is closing mines and limiting exports. This is bullish for the strategic metals. The use of technology in the world is rapidly growing. Where will we source more metals to keep up with the demand? These metals are mined as by-products of minor metals like copper and zinc. Expanding the supply of the strategic metals is not possible.

Precious metals are an integral part of any long term investment portfolio. We hear all sorts of percentages of how much precious metals you should own. The answer is whatever makes you feel comfortable. Strategic metals are a great option for people who want to expand beyond precious metals. The metals markets might currently be trading sideways, but for how much longer?

By: Randy Hilarski – The Rare Metals Guy

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