Precious metals represent an excellent portfolio diversifier and hedge against uncertainty. They are also a tangible and highly liquid asset. Sophisticated financial managers often look for portfolio diversifiers with a low beta or correlation to stocks and bonds. Thus, in recent years, worldwide investor interest in precious metals as a hedge against inflation and currency fluctuations has intensified. Moreover, many investors participate in the precious metals markets when they believe the stock market is over-priced, and they seek other investment alternatives.
Most investors find the tangible nature of precious metals attractive.
Although many investment derivatives have been created to hedge currencies and equities, those products do not fulfill the traditional role of precious metals bullion. For example, following the 1987 stock market crash, gold mining shares fell in value while gold bullion prices actually rose demonstrating that gold shares are not always a reliable proxy for gold bullion. In addition, investors concerned about the stability of the financial markets do not always want an instrument or obligation based solely on the good faith and credit of a financial institution or national government. Of course liquidity, or how easily an asset can be converted to cash, is also of critical importance to most investors. The precious metals marketplace operates worldwide and the international nature of precious metals not only insulates investors from political risk in any particular country, it also provides exceptional liquidity.