Why Investing in Precious Metals Is a Bad Idea

When the world seems like it’s going crazy and the news cycle is filled with a constant stream of bad news, you might be tempted to make some dumb financial decisions like go all in for a “better” bartering system based on commodities like gold or silver. But before you invest all your money into precious metals, let’s get the facts straight.

Investing in Precious Metals

Throughout history, gold, silver and other precious metals have been highly sought after and considered the most valuable commodities someone could own . . . but are they good investments?

Let’s dive into the big three: gold, silver and platinum.

Gold

When you think about the world’s obsession with gold, it’s easy to get caught up in the adventure and mystery—like panning for gold during the gold rush, pirate ships and treasure maps. No wonder we’ve grown up believing gold is the most valuable thing we could have. But is it?

Nope. Sorry to burst your 24-karat bubble, but gold isn’t worth what you think it is. In fact, the U.S. dollar hasn’t been able to be converted into gold since President Richard Nixon ended that practice in 1971.¹ Before this, people would buy gold bars as a way to diversify their investment portfolio and give them a safeguard against inflation. And some people still do this, but instead of burying gold bars in their backyard, they’re buying stocks or mutual funds that invest in gold. But listen closely: Since the dollar isn’t backed by gold anymore, investing in this precious metal won’t help you if inflation hits.

So, when you decide to invest in gold thinking you’re going to be “one of the smart ones” if the dollar tanks, you may actually have just flushed your money down the toilet.

Silver

When you think of silver, you probably think of your grandma’s silverware (and the time she paid you to polish every spoon she owned) or your favorite necklace. But you probably don’t think of its use in mirrors, dental fillings, batteries or even those touchscreen gloves you got for Christmas.²

Some people believe silver is often a better investment than gold, hoping its lower price point will get them a better return if the markets ever change for the better. But here’s the truth: Silver (like gold) is not your answer to a financially stable life. The prices of gold and silver are so unstable (and have been over time) that the only use for them in an economic crisis would be to hope someone would take your silver coins or watch in exchange for a pack of toilet paper or a can of gas.

Platinum

Platinum is most commonly used in jewelry. But it may surprise you to know that it’s also used to make dental fillings, pacemakers and car parts like converters and spark plugs. Not only that, it’s often used in chemotherapy.³

Not to sound like a broken record here, but just like gold and silver, platinum isn’t the investment you’re looking for. If you want to be a fancy investor and expand your portfolio, we suggest looking elsewhere. Listen up: Commodities and resources like gold, silver and platinum aren’t going to save you from inflation. 

How to Invest in Precious Metals

There are two main ways to invest in precious metals:

1. Buying the gold, silver or platinum outright
2. Buying an exchange-traded fund (ETF) or a mutual fund with gold in the mix

When you buy the precious metal outright, you might feel like you’ve struck gold (literally). Just like when you hold a dollar bill in your hand, you have the security of being able to actually have your investment in the form of gold bars or silver coins in your hand (or stuffed in your safety deposit box).

Market chaos, inflation, your future—work with a pro to navigate this stuff.

With ETFs, you buy stock in the precious metal of your choice. That stock is tied to the current value of the gold, platinum or silver that you invested in. 

“I don’t buy precious metals at all because I like my money—I don’t want to lose it. That simple.” — Dave Ramsey

Should I Invest in Precious Metals?

Unless you want to get into the jewelry-making game, investing your hard-earned dollars into precious metals like gold, silver and platinum is not the best use of your money. And if you don’t believe us, just look at history.

Anytime you’re analyzing an investment (real estate or stock), you should look at its track record of what it’s done in the past over a long period of time. That’ll give you an idea of what it’ll do in the future. And if you look at gold prices, its value is all based off of emotion. When people are afraid that the economy might crash, they run to invest in gold, believing they’ll be safe financially. But that’s a myth—because when an economy crashes, people go back to the bartering system. And like Dave says, “At no time has gold been used as a medium of exchange of a crashed economy since the Roman Empire.”

There aren’t many times you can take a bag of gold chains to the gas station and exchange it for a tank of gas. The only reason the dollar is worth something is because it’s a worldwide accepted form of trade. It’s a transaction based on trust. These precious metals are just a commodity like a bushel of wheat or a barrel of oil or, in more recent times, toilet paper and hand sanitizer.

In times of uncertainty, people run to gold out of the false assumption that it’s going to be a safe investment. But when people make decisions based on fear (or greed), they make poor investment decisions.

“Commodities are always going up and down, up and down. It’s got a poor rate of return, and there’s nothing that drives the price except for people’s fear or greed.” — Dave Ramsey

Alternatives to Investing in Precious Metals

When it comes to investing in precious metals, you’ll spend more time agonizing over the rise and fall of their value on any given day instead of building equity on a home or rental property or seeing growth in your 401(k).

Every day you keep an investment, you’re making the decision to keep your money tied up in it regardless of its current market value. That means you need to invest in things that will make you more money over time—like real estate and mutual funds.

The most important thing is that you don’t invest in anything you don’t understand. Having an investment professional on your family’s team can help you tell a good investment from a bad one and help you build wealth over time. 

 

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.