Out of all of the precious metals mutual funds, gold funds are, by far, the most popular. Here are some reasons why:
- Gold has soared since the turn of the century. Gold has risen by more than 200 percent since 2001 and continues to regularly surpass highs last seen in 1980 [source: Anderson].
- Gold has a high correlation against the dollar. Since gold is priced in dollars, it has a defense against inflation. As the U.S. dollar grows weaker, gold prices rise [source: Anderson].
- While just about every other product's demand goes down when the price goes up, gold works the opposite way. Gold's investment demand rises with the price, giving it a significant advantage over any other product or investment [source: Middleton].
Gold itself is becoming increasingly popular, and supply can't keep up with demand. Exploration and development in the gold-mining industry dropped 70 percent between 1980 and 2000. Since then, greater wealth around the world has created more gold buyers, especially in India and China, which have long been gold-loving countries [source: Middleton]. Couple those factors with the fact that gold's demand and price rise in tandem, and you'll see why gold is a very popular investment.
What also makes gold a popular investment is that it often becomes expensive when other investments are dropping. Gold's high performance as other stocks and bonds tank make it look even more appealing to investors worried about their portfolios.
Silver is also a popular precious metals mutual fund, although not nearly as popular as gold. Many mutual funds have both gold and silver as part of their stocks. Platinum can also be invested in through a precious metals mutual fund, but it's more complicated. There are no platinum funds on the New York Stock Exchange so the investments must be made in a foreign market.
For all of the benefits of gold and silver mutual funds, there are still risks and potential downsides. Some funds can be more volatile than others. Because mutual funds are handled through fund managers, transaction fees and other expenses can differ greatly. What's more, funds may charge fees or penalties for cashing out before a certain period, which can hurt your investments if the precious metals market shifts before you can pull out.
There are risks and rewards with all investments, but the current market and economy might make gold or silver mutual funds a good addition to your portfolio. To learn more about investing, visit the links below.
Related HowStuffWorks Articles
More Great Links
- Anderson, Thomas M. "The High Price of Precious Metals." Kiplinger.com. 2/22/08. http://www.kiplinger.com/columns/fundwatch/archive/2008/fundwatch0222.htm (Accessed 5/19/08)
- Bankrate.com "The best ways to buy gold." MSN Money. 1/30/06. http://moneycentral.msn.com/content/invest/extra/P143352.asp (Accessed 5/19/08)
- Lifton, Jack. "Peak Platinum, Perhaps?" Resource Investor. 2/27/07 http://www.resourceinvestor.com/pebble.asp?relid=29380 (Accessed 5/19/08)
- Midas Funds. "What are gold mutual funds?" http://www.midasfunds.com/gold-mutual-funds.html (Accessed 5/19/08)
- Middleton, Tim. "Fool's gold for your valentine." MSN Money. 2/12/08. http://articles.moneycentral.msn.com/Investing/MutualFunds/FoolsGoldForYourValentine.aspx (Accessed 5/19/08)
- ThinkQuest. "Precious Metals." http://library.thinkquest.org/3298/doc/metal.html (Accessed 5/19/08)