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What to Look for When Buying Precioius Metals in 2014

Section: Journal

2013 was a difficult year for investors who’ve been buying precious metals to hedge against inflation during these trying economic times. For the first time in half a decade, the stock market showed gains. Now, that may seem like a contradiction, but it’s not.

A generally bearish market favors precious metals. A bullish stock market actually usually means that the precious metals market will go bear. 2013 was no exception to that rule, either. Gold plummeted almost $500, from $1700 per ounce at the beginning of the year, to $1250 at the end of the year. Silver followed suit; going from $33 per ounce, down to $20.50, nearly a 40% drop.

Now, as the economy begins to recuperate, you might think that the upswing in the market over 2013 would be a bad sign for buying precious metals in the next few years, but you might be surprised. The market is actually likely to suffer in the next few years as a growing pain of long-term actions to get the economy back on track.

Interest Tapering and the Market

You see, as a stopgap, after the housing bubble burst and the banking crisis hit so many, the federal government did two things to try to pump life back into the economy. They artificially lowered interest rates and bought up as many toxic loans as they could. They also printed an excess of currency to push money into the market to get people to spend and circulate cash. Unfortunately, this is a very short-term fix, as an economy that’s engorged with currency will inevitably experience rapid inflation. The simple fact of the matter is that when you print money with nothing to back it up, it just won’t be worth as much.

Sometime in 2014, the federal government is slated to start tapering the quantitative easements it’s been making over the last five years. Not all of the easements will go away at once. In fact, the government will try to taper as gently as possible. Otherwise, it would be disastrous, like sticking a pin in a turgid balloon and expecting that it won’t pop.

However, no matter how slowly the government tapers easements, some discomfort will be felt on the stock market. That’s why buying precious metals right now is a good idea, especially for the long-term investor.

If you’re looking for a short-term fix or a get-rich-quick scheme, buying precious metals is not for you. The next three years are likely to be volatile, especially for silver and gold. When you’re buying precious metals, though, you should be looking toward an investment that will last more than just a couple of years.

In fact, the best way to go about buying precious metals is to put 10% to 20% of your investment portfolio into them and hold onto them for years to hedge your savings against inflation. You see, if you play the long game and save your precious metals investments over many years, it won’t really matter if they see a small increase or decrease in value the year that you liquidate those funds because they’ll already be worth a great deal more than you put into them in the first place.

Why Precious Metals

If you’re still wondering why you should be buying precious metals instead of some other tangible asset to hedge against inflation, here’s another reason. In addition to their fiat value, all precious metals have a great deal of innate value, due not only to their beauty but also to their usefulness. Silver, gold, platinum, and palladium are all malleable, corrosion resistant, and conductive. They all have major value in the technology and/or automotive industries, making them dually valuable to consumers.

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