What are the relative merits of investing in precious metals versus antiques? It is a compelling question for hard asset investors. After all, precious metals have had stellar price gains since the turn of the millennium. As of September 30, 2016, gold has appreciated at an annualized rate of 9.93% over the last 15 years. Silver has compounded at an annualized rate of 8.66% over the same period. Even platinum, the laggard of the precious metal family, has still managed to return a very respectable, although perhaps not spectacular, 4.20% per annum over that time frame.
So if you want to inoculate your investment portfolio against inflation, financial disruptions or the zombie apocalypse, precious metals look like a pretty good deal. And they are a pretty good deal. I certainly like precious metals and hold them in my own portfolio. But I like to think of them as a complement to investing in tangible assets like art and antiques, not as a replacement for them.
Now, not everyone agrees with me on the question of precious metals versus antiques. Some people feel that precious metals are so simple, straightforward and easily understood that they should be your only tangible investment. These pundits argue that when you buy antiques you’re paying too much for intangible attributes. This manifests itself in the form of a premium – the price over its intrinsic value that you pay for an object.
All precious metals – gold, silver, platinum and palladium – sell for fairly modest premiums over bullion value. Gold and silver bullion coins and bars typically have premiums of only a few percent over spot prices. Platinum and palladium bullion pieces usually have somewhat higher premiums, but they are still generally in the 5% to 10% range.
Antiques, in contrast, generally have premiums that start at 15% or 20% over intrinsic value. And they often go much, much higher than that. It isn’t unusual for some antiques to have premiums of several hundred percent or more! In cases where an antique contains no precious metals or gemstones at all, a premium cannot even be calculated because the item has no intrinsic value.
But all this talk of premiums misses an important point. Throughout history, the wealthy have been willing to pay good prices for high quality, investment grade antiques because of their unsurpassed beauty, historical importance and the social status they confer. A fine antique’s aesthetic qualities grant it an allure that is at once both intangible, and yet, utterly real. As the summation of human culture, arts and ingenuity, investment quality antiques are, quite simply, worth more than the sum of their parts.
Gold and its cousins cannot claim that, although they are desirable for other reasons. Instead, precious metals behave a bit like the cold, hard cash of the tangible asset realm. They are a great baseline position – a wealth preserver free from the vagaries of paper currencies. And they are liquid, meaning easily bought and sold quickly close to their fair market value. But precious metals do have their limitations.
For one thing, it is impossible to buy precious metals at a discount. No dealer will ever sell an ounce of gold for a penny less than the going spot price. And that global price is only a few clicks away on the internet, so everyone knows what it is at any point in time. Sure, you can get a small price break on the premium if you buy large quantities of bullion from a reputable dealer. But even then, the discount will never be more than 1% or 2%.
On the other hand, discounts abound in the antique market for those savvy enough to search them out. Because the antique markets are illiquid, they lack the efficiency found in traditional asset markets like stock and bond exchanges. But this is a good thing. It makes it possible, with a little bit of specialized knowledge, to buy antiques at low prices. Not only that, but the right knowledge can also help you invest in antiques that will provide excellent future returns. This level of fine-tuning is not possible with gold or silver bullion.
But, I still feel it is important to allocate a portion of your investment portfolio to precious metals, in addition to antiques. Like antiques, gold, silver, platinum and palladium are immune from currency crises, bankruptcy, fraud and confiscation. Indeed, precious metals can provide much needed liquidity to a tangible asset portfolio, allowing you to confidently invest in high return, but illiquid antiques. In the end, gold and antiques are the perfect pairing for a well diversified tangibles portfolio.
