Banks fail. Companies go bankrupt. Governments are overthrown. And with these situations, investors lose money due to counterparty failure. Precious metals have been a store of value for centuries and serve as a hedge against inflation and economic uncertainty. One of the key advantages of precious metals is that they do not have counterparty risk. This means they are not subject to the risk of default or bankruptcy, unlike many other investment options such as stocks, bonds, derivatives, and cash.
Counterparty risk refers to the possibility that the other party in a financial transaction will not fulfill their obligations, resulting in a loss for the investor. For example, if you buy a bond issued by a company, you are susceptible to the risk that the company will default on its debt and be unable to repay you. In contrast, owning physical precious metals means you are not dependent on any other party since you directly own the asset.
This ability to physically safeguard your precious metals is essential in times of political or economic turmoil when financial institutions may be vulnerable to seizure or restrictions on withdrawals. The bank runs that occurred in the 1930s when the stock market crashed perfectly exemplify this risk. Investors were stuck, unable to withdraw their funds from banks. During that decade, 9,000 banks failed, losing a total of 7 billion dollars of assets.
Physical precious metals differ from the above in that they are tangible materials with a determined value in the market. Highly liquid and exchanged globally, they can be sold in any part of the world regardless of local currency or economic conditions. This ability to take physical possession of your investment and free yourself from counterparty risk makes precious metals the ultimate secure investment.
