What Investors Should Know About Precious Metals

Over the past year alone, the price of gold has climbed roughly 73%. Moves like this tend to get investors’ attention and raise a natural question: Should precious metals be part of a financial plan?

The answer, like many things in investing, is nuanced. Precious metals can play a meaningful role in a well-constructed portfolio, but only when you understand what they actually are, what drives their value, and where they realistically fit.

First, a quick definition: Precious metals are natural metallic elements that are rare, durable, and have historically held economic value. The most widely known are gold and silver, but they also include platinum and palladium.

Here’s what else you need to know.

What Drives the Value of Precious Metals?

At the core, precious metals rise when people lose confidence in the purchasing power of their currency. Any government can print money, but no government can manufacture gold or silver. That scarcity is the foundation of their value, and it’s a dynamic that has held for thousands of years.

The more money a government prints, the less each dollar is worth. Gold and silver have historically moved in the opposite direction. So rather than thinking of them like a stock you’re hoping will grow, think of them as a safeguard that holds its ground while paper money loses value.

Beyond currency concerns, supply and demand also shape prices, especially in the short term. Silver is a good example. Demand has grown steadily as it’s become a key material in batteries and electronics. But mining hasn’t kept pace. So the shortfall has been covered by tapping into existing stockpiles. That’s a short-term fix, and tightening supply tends to push prices up. Fear-driven events, like the Silicon Valley Bank collapse in 2023, can also create short-term spikes in precious metals premiums as investors seek safety.

The Role of Precious Metals in Your Portfolio

Precious metals are commodities, which behave differently from stocks or bonds. An ounce of gold mined in China is identical to an ounce mined in Nevada; there’s no brand, management team, or earnings growth. Because of this, precious metals don’t correlate perfectly with equities, and that diversification is why they’re valuable in a portfolio.

That said, it’s important to be clear about what precious metals don’t do. Unlike a stock, gold produces no earnings. It pays no dividend. It doesn’t grow. Over long periods like 50 to 100 years, gold and silver tend to track inflation fairly closely, historically around 3% to 4% annually. By comparison, equities have historically returned closer to 10–12% annually.

For most investors, this means precious metals should represent a relatively small slice of an overall portfolio; typically less than 10%. The right allocation depends on your personal goals, your concern about inflation, and whatever inflation hedges you already have (like real estate, for example). It’s also worth noting that a diversified stock portfolio already includes indirect exposure to precious metals through mining companies whose stock values are tied in part to the metals they hold in reserve.

Common Pitfalls

Investing in precious metals comes with a learning curve, and some misconceptions can trip up even experienced investors. Before buying or selling, it’s worth getting clear on these.

Assuming There’s a Price Floor

One of the most dangerous mistakes investors make is that they believe precious metals have a price floor; that because they’ve been high recently, they won’t fall significantly. But history tells a different story. Gold hit $850 per ounce in 1980. By 2003, it had dropped to around $253. That’s over two decades with no return. Silver has shown similar volatility. There’s no reliable minimum or maximum, because prices ultimately reflect what buyers and sellers agree something is worth at a given moment in time.

Misunderstanding Spot Price

Spot price is not what you’ll pay or receive. When you buy physical metals, you’ll typically pay a premium above that spot price. When you sell, you’ll usually receive a discount below it, unless you’re moving large volumes. This spread can directly affect your real returns. Factor this in before assuming a purchase is as straightforward as the quoted price suggests.

Overlooking Tax Implications

Precious metals are classified as collectibles by the IRS, meaning capital gains can be taxed at rates up to 28% — higher than the standard 15% long-term capital gains rate that applies to most stocks. This is a detail many investors discover only after the fact. Consult your tax advisor before buying or selling.

Falling For Predatory Marketing

Late-night TV commercials and online ads frequently target retirees with urgent messaging about “limited availability” and “guaranteed protection.” A few practical rules:

If they’re charging more than 5% to 8% over spot price, that’s a red flag
Be skeptical of “collectible” coins where much of the price reflects perceived rarity rather than the metal itself
Buy from reputable, established dealers and verify what you’re purchasing
Know in advance where and how you intend to sell

Precious Metals and Your Financial Peace of Mind

For investors nearing or in retirement, the question often becomes less about return and more about stability and peace of mind. Precious metals can contribute to that, but context matters.

If you’re particularly concerned about inflation or currency instability, having a portion of your wealth in gold or silver may genuinely reduce your anxiety about the future. But if you already have meaningful inflation protection through real estate, Social Security with cost-of-living adjustments, or other assets, precious metals may not add much to your peace of mind.

There are also practical considerations for older investors. Physical metals must be stored securely and can be stolen, lost, or damaged. They can also become a burden for heirs to locate and liquidate. Exchange-traded funds (ETFs) that track precious metals offer a simpler alternative: no storage concerns, easier to transfer, and still providing the portfolio diversification and inflation hedging you’re looking for.

Questions about how precious metals fit into your overall financial picture? Premier Financial Group has been helping individuals, families, and businesses navigate complex financial decisions for over 35 years. As fiduciaries, we are committed to putting our clients’ best interests first. No commissions, hidden costs, or conflicts of interest.