![]() Precious metals in the above table and subsequent calculations, tables and charts within this document are evaluated using the abrdn Physical Precious Metals Basket Index which reflects the daily performance of an investment in a precious metals basket with the following fixed components: Gold, Silver, Platinum and Palladium. A basket offers further opportunities to benefit from diversification advantages of an asset class while maintaining the unique qualities inherent to the individual precious metals. A diversified basket of precious metals tends to perform more consistently versus any single metal and creates an exposure to both the cyclical and non-cyclical drivers of gold, silver, platinum, and palladium as a whole. While palladium has been the strongest performer over the past 5 years, no one metal has continuously led the pack over time (Chart 1). These unique factors can set precious metals apart as a “true alternative” with distinct diversification, risk management and investment qualities. ![]() Consequently, precious metals historically have had low sensitivity to other markets, particularly equities and commodities, which tend to be highly cyclical. Macroeconomic and monetary factors, such as interest rates, exchange rates and inflation, act as key drivers.Īdditionally, precious metals have diversified factors of demand that differentiate price movements during different parts of the market cycle. Unlike commodities, however, they also tend to act like currencies. Like other commodities, precious metals are global assets partly driven by fundamentals (i.e., supply and demand) over the long run. Since then, more investors have looked to include nontraditional asset classes (or “alternative investments”) into their portfolio mix to help manage risk exposures in portfolios. This changed after the first decade of the 2000s saw two financial crises - first in 2001, then again in 2008. For several decades, investors have achieved this through traditional asset classes, such as stocks, bonds and cash. Asset allocation seeks to increase risk-adjusted returns through diversification, based on the principle that different assets perform differently under varying market and economic conditions. Precious metals, including gold, silver, platinum and palladium, have grown in prominence in recent years as viable investment alternatives to include in asset allocations. The rise of precious metals in modern markets Precious metals can also serve as a hedge against extreme events and market turmoil. This may help reduce performance drawdowns during equity market volatility. They can also act as core risk-management tools for investors by providing effective diversification against risk assets. Historically, a precious metals allocation increased efficiency in a diversified stock-bond portfolio. In our view, investors can best realize these potential benefits by regarding precious metals as a distinct asset class, separate from other commodities and alternative investments.
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