Where Do Precious Metal Funds Fit in a Portfolio?

Investing in precious metal funds has become more commonplace in today's market. What once was thought of as an area outside of the mainstream of investments, is now more commonly held in portfolios. The precious metal fund is a mutual fund that invests in precious metals such as gold and silver. These funds make it possible for the average investor to get involved in the precious metals market.

The Need for Precious Metal Funds

Before these funds were invented, the only way to access exposure to these materials was to buy futures contracts, or physically warehouse metals. Futures contracts were typically viewed to be confusing for the average investor. Also, warehousing large amounts of gold or silver was not safe because of theft. The precious metals fund was a welcome addition to most investors portfolios. In this way, an investor can purchase shares in a mutual fund very easily and the fund will handle the details of actually warehousing gold or purchasing the futures contracts. A mutual fund of this kind may also invest in stocks of gold and silver companies or companies that provide equipment to those companies. Regardless of the exact strategy involved, ultimately the success of the fund comes down to the price of the precious metals involved.


As an investor, you may realize that many investments are highly correlated to one other. When you invest in the stock market, the price of the stocks that you buy can be influenced by the rest of the general market. Therefore, a single stock is not immune to the entire market. Certain sectors or industries can be greatly influenced by other sectors within the market.

As an investor, you will be required to pay attention to several different aspects of the global economy in order to determine what your stocks will do. With precious metals, this is usually not the case. Precious metals tend to not be correlated to any other financial markets. Even when the stock market goes down rapidly, gold and silver tend to maintain their value. They tend to move independently of anything else, which makes it easier to diversify your portfolio.

Inherent Value

Investing in precious metal funds provide you with an investment that will always have some value. While stocks can decline to nothing, precious metals will always have some value in the market. Therefore, this gives you some level of safety and will keep your investment from bottoming out. The value of precious metals will vary, depending on the economy, mining activities and availability of the precious metal, so it is important to properly time any sale of these funds portfolios.

Portfolio Considerations

Investing in a precious metals fund should be something that you consider for your general, overall portfolio. However, it should only be a portion of your portfolio, and not the entire portfolio, to keep your money shielded from large economic movements. You want to have a diversified portfolio that is made up of investments from several different markets. This will ensure that your portfolio will continue to grow regardless of what happens in the market place.

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