Diversification with Precious Metals

Diversification Within Precious Metals


Written by John Rothans

May 12, 2021

It’s essential to apply the principles of diversification to your whole portfolio and to the individual asset classes within your portfolio, and it’s especially easy and important to do within the precious metals category.

Learn about diversifying within precious metals and about the lesser-known precious metals silver, platinum, and palladium.

The Defensive Advantage of Precious Metals

When you add precious metals to your portfolio, you give your portfolio a defensive hedge.

Financial services provider Charles Schwab illustrates this defensive hedge with portfolio statistics for the first quarter of 2020.

During those three months, U.S. large-cap stocks fell 19.6%, U.S. small-cap stocks tumbled 30.6%, and international stocks declined 22.8%. However, gold and Treasurys each rose 6.2% during the quarter. Meanwhile, cash remained relatively stable.

Schwab points out that gold, Treasurys, and cash are all defensive asset classes. “Importantly, what these asset classes share is a low to negative ‘correlation’ with other asset classes such as stocks. This simply means that they tend not to move in lockstep with stock prices,” Schwab notes.

Bottom line: Adding precious metals to your portfolio may help offset dips in stock prices and other assets. This smooths out the ups and downs that affect pretty much any portfolio and can contribute to protecting your wealth.

Diversifying Your Portfolio With Diverse Metals

While gold may be the shining star of precious metals, there may also be room in your portfolio for silver, platinum, and palladium.

“Price, demand, and volatility may all play a role in determining your interest in different metals,” the GOBankingRates website explains.

You may want to consider other precious metals aside from gold because the price of each precious metal fluctuates in different ways. For instance, gold and silver prices can react to different things. The price of silver might go up if there’s a rush on solar panels, while the price of gold wouldn’t necessarily be impacted by solar technology demand. Therefore, having an assortment of precious metals in your portfolio can even out the highs and lows within the asset class.

Case in point: The World Bank predicts that silver and platinum will outperform the precious metals market in 2021. As a result, a defensive strategy for your portfolio this year may involve stocking up on silver and platinum to balance out your portfolio and help protect your wealth.

Simply put, precious metals like gold, silver, platinum, and palladium can serve side-by-side as safe-haven assets. The Money Crashers website points out that these metals can not only be good components of a portfolio during economic downturns, but can also be good elements of a portfolio during economic upswings.

Their resilience “makes precious metals a go-to asset class to include in any well-diversified portfolio,” according to Money Crashers.

Aside from including a mix of precious metals in your portfolio, you also may want to further diversify by purchasing different types of precious metals. For example, you may consider picking gold bullion coins, certified gold coins, and gold bars when you’re allocating gold as a portfolio asset. Why? Because the long-term performance potential of gold bullion, coins, and bars may react to different market conditions over time. As a result, putting all three in your portfolio may act as a further defensive hedge.

Are you interested in learning more about how various precious metals can work alongside one another within your portfolio? We’re America’s Gold Authority®, but we carry more than just gold. Call U.S. Money Reserve for a one-on-one consultation with a knowledgeable precious metals Account Executive.


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