Basic concepts for investing in gold · Investing in gold directly · Investing in gold indirectly. Direct real estate investment involves buying a share in a specific property. For equity investments, this means acquiring a stake in the property of an entity that directly owns an asset, such as an apartment complex, shopping mall, or office building. Investing in debt refers to capitalizing on a loan that is secured by real estate, such as land or existing property.
General commodities, like other alternative investments, have a higher equity correlation than precious metals. Commodities have registered a correlation of 0.54 with global equities, while that of precious metals, of 0.26, has been half over the same period. This difference between precious metals and commodities becomes even more tangible when evaluating their performance. Investing in precious metals such as silver has long been a popular way for investors to diversify their portfolio with assets that are less correlated with stocks, bonds and other investments and offset concerns such as inflation and currency depreciation.
Another reason why it's important for investors to consider precious metals as an asset class other than commodities is their current weighting in general commodity indices. In particular, the information is intended only to inform people included in these categories about the investment strategies and opportunities offered by Abrdn. On the other hand, when global equities recorded negative returns, precious metals only captured 17% of the decline. These unique factors can differentiate precious metals as a “true alternative” with different diversification, risk management and investment qualities.
Commodities, on the other hand, have historically recorded more than four times the fall of stocks (65%) than precious metals. Precious metals are global assets with a physical production and storage treatment similar to that of broader commodity sectors, such as energy, agriculture and base metals. Portfolio risk and return levels can be better managed if there is an active allocation to precious metals. The long-term nature of direct real estate investment can generate some additional benefits, such as offering a constant cash flow over the term of the investment, but this comes at the cost of daily liquidity (in the case of publicly traded REITs).
The Barclays US Aggregate Bond Index (Barclays Agg) is an emblematic broad-based benchmark that measures the market for investment-grade, taxable bonds denominated in US dollars and with a fixed rate. The weighted composite fund index (HFRI) is a global index with equal weighting of more than 2000 funds from a single manager in the hedge fund research database. Structured as commodity groups, a private investment fund that combines (pools) investor contributions to trade commodity futures, these ETFs use futures to replicate the movement of spot silver prices or use leverage to amplify the underlying movement of silver prices. The track record of performing well for precious metals in the face of market uncertainty demonstrates their potential as a risk management tool.
In an environment of fear of markets, global equities tend to see big sales, as investors try to reduce exposure to risky assets and seek more stable defensive investments. Buying shares in companies that mine silver (or that simply hold underground reserves) is an indirect method of investing in silver. Historically, precious metals have shown a low correlation with most asset classes, especially with stocks. A basket offers more opportunities to benefit from the diversification advantages of an asset class while maintaining the unique qualities inherent in individual precious metals.