A Brief History Of Gold
In order to fully understand the purpose of gold, one must look back to the start of the gold market. Gold’s history in society began well before even the ancient Egyptians, who started forming jewelry and religious artifacts. Yet, it wasn’t until around 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. The creation of a gold coin stamped with a seal seemed to be the answer, as gold jewelry was already widely accepted and recognized throughout various corners of the earth.
Following the advent of gold as money, its importance continued to grow throughout Europe and the U.K., with relics from the Greek and Roman empires prominently displayed in museums around the world, and Great Britain developing its own metals-based currency in 775. The British pound , shillings, and pence were all based on the amount of gold that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa, and the Americas.
Reasons You Should Invest In Gold For 2021
Gold- an asset that never goes out of fashion. In 2020, Gold was one of the most sought after asset classes due to the uncertainty in the global markets. Gold is one of least available common metals on the earth.
For the last two years gold has appreciated considerably due to various reasons. What are the various factors that could influence the price of gold going forward?
Weakness Of The Us Dollar
Although the U.S. dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices . The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling between 2008 and 2012, hitting above the $2,000 mark. The decline in the U.S. dollar occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.
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Whats Next For Blackberry Stock After A 4% Move Last Week
Gold which is up nearly 10% year-to-date is likely to score serious gain in the coming weeks. The reason is that we have a situation where monetary policy itself isnt enough to calm the markets however, governments are trying to provide support on the fiscal front as well. For instance, Donald Trump has pitched the idea of no payroll tax for this year to soften the blow of Coronavirus. So far, we have not seen a green flag which is why investors are still nervous. Donald Trump may achieve some of his goals, but it wont be enough, the economic damage is too considerable, and the Coronavirus is still nowhere close to coming under control.
Going back to the monetary policy action and why there is serious potential for the gold price to increase at present, traders and Wall Street are expecting further interest rate cuts from the Fed during their meeting next week. An interest rate cut of 50 basis points is the minimum that investors expect, and according to bigger banks like Goldman Sachs and JP Morgan, we can expect 75 basis points and a full percentage point.
Regarding the price action, an interest rate cut isnt priced in at all, if it had been, the price would have been trading much higher. Currently, its trading near $1,661.
If the Fed cuts the interest rate by 50 basis points, this could push the gold price above 1700 again. Anything more than 50 basis points, especially a whole percentage point, could pump the price to 1750 or higher.
Current And Historical Prices Of Gold
Investors should start by looking at the spot price of gold, which is what it can be bought and sold for at that moment. The spot price of gold is quoted per one gold ounce, gram, or kilo. For example, by the end of day on Monday, June 7, 2021, the spot price of gold was $1,903.00 per ounce, $61.18 per gram, and $61,181.45 per kilo.
If you look at historical gold prices, you’ll find that the price of gold shot up dramatically in the 2000s. In 2008, the price of gold varied from around $720 an ounce to over $1,000 an ounce. As the economy sank further into the recession, gold prices soared to around $1,895 in 2011 due to investor sentiment and demand. By April 2020, gold prices declined slightly from where they were almost a decade earlier but continued to perform well in the midst of an economic downturn.
Something similar happened in the late 1970s. After the price increase in the ’70s, gold spent the next 20 years declining in value before going back up around 2000. During the pandemic crisis, demand for gold surged, and the price of gold increased. Investors couldn’t be certain at that time whether the increase would continue or not because it is equally possible that the trend could continue or the price would once again languish for a considerable length of time. While languishing, any gold investment would not produce any interest or dividends.
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Gold Helps Achieve Portfolio Diversification
Gold is negatively correlated or has a low positive correlation to equities, meaning when equities do well, gold generally underperforms and vice-versa. This year while the broad equity market index, S& P BSE Sensex, has delivered close to 23% return so far, gold returns are in the negative territory.
Lets look at the graph below to find some more examples. In 2016, gold prices went up 12%, while gains on equities markets were limited to 2%. In 2014, when gold went up by just 2%, Sensex delivered a 30% return. Therefore, allocating a percentage of your portfolio towards gold will help you reduce the volatility in the portfolio and achieve a better risk-adjusted return. The following table shows how gold has performed against equity.
Gold As An Investment
Of course, there is the other side of the trade. A group of people is buying gold. Ignoring the speculators and momentum-chasers, as these groups have little effect on the long-term price trend, there is a logical reason for people to turn to gold as an investment.
As an aside, gold is not an investment. People may say they are investing in gold, but if they are just buying gold to hold or wait for its price to rise, they are not investing at all. They are either speculating on the gold price, or they are opting out of investment. Thats what it means to hold money: to not invest .
There are two reasons why people are turning to gold now, more than ever.
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Is Silver Always A Good Investment
Silver has not historically performed as well as gold during recessions and stock market crashes. As mentioned above, this is due to its high industrial useif economies weaken. demand for this portion of silver normally declines.
But as this article has shown, there are numerous factors working in silvers favor for the foreseeable future. And like gold, silver is a monetary metal and thus will respond to monetary dilution and fiscal unrestraint. Until the current system is retooled to discourage rampant currency creation and politicians are more financially responsible, history says silver will remain a strong asset to own.
Is It A Good Time To Invest In Gold
So is it a good idea to invest in the gold market right now? It might be worth having some exposure, if only for the sake of portfolio diversification.
Due to ongoing supply-chain problems created by the pandemic, inflation has reached multi-decade highs in Canada, the U.S., and other parts of the world. Its putting pressure on households, and has become a major headache for central bankers.
After years of maintaining record low interest rates, central banks are starting to introduce rate hikes. That could cool down inflation, but it could also slow down economic growth. Theres also rising geopolitical risk that could impact the economy.
Theres a lot of uncertainty in the air, and it might very well be time for gold to shine again.
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Physical Silver Is A Hard Asset
Of all the investments you own, how many can you hold in your hand?
In a world of paper profits, digital trading, and currency creation, physical silver stands in contrast as one of few assets that you can carry in your pocket anywhere you go, even another country. And it can be as private and confidential as you want. Physical silver is also a tangible hedge against all forms of hacking and cybercrime. Theres no erasing a silver Eagle coin, for example, but that can certainly happen to a digital asset:
What Are The Risks Of Paper Gold
Counterparty risk: this is one of the most common risks usually associated with paper gold. A company or broker in charge of your ETFs could go bankrupt or fail to live up to their obligations, misrepresenting the true state of their portfolio.
You dont really own gold: in reality, the institution that sold you an ETF share might only hold a fraction of your assets value in physical metal. So, for example, if too many investors wanted to cash in their paper gold, the fund that sold it to them might not have enough of the physical metal to repay everyone.
Tracking error: tracking errors arise mainly due to transaction costs, cash amount held by an ETF as well as the expenses charged for managing the fund. A slight degree of a tracking error is somewhat natural in any ETF product, however, it may also lead to an unexpected profit or loss.
Volatility: the gold futures market can be quite volatile, partly due to the speculative nature of gold futures assets. This basically means that if there is a chance to make 2,000 U.S. dollars, there is also a possibility to lose 2,000 U.S. dollars.
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How Much Should You Allocate To Gold
So now that you have understood why you should invest in gold, the obvious next question will be how much you should invest? Gold may help you beat inflation but may not be able to deliver equity-like returns over the long term. But gold will help create balance in the portfolio by providing downside protection when equities are not doing well.
Therefore, investors should invest around 10-15% of the portfolio in gold to achieve a better risk-adjusted return.
How Much You Have For A Down Payment
Your personal finances play a crucial role in your ability to buy a home and support yourself once youve taken on a mortgage.
average return of 618%
First and foremost, do you have enough for a down payment? Most banks and lenders will expect you to have 20% of the purchase price of the home in order to avoid having to pay private mortgage insurance .
If you dont have a large enough down payment, youll be required to purchase PMI, which serves to protect the bank or mortgage lender if you default on the loan. Depending on how much you borrow, what your credit score is, and your lender, the Urban Institute estimates PMI can cost anywhere from 0.58% to 1.86% of the original amount of your loan.
If you purchased a new home for $300,000 and were only able to put down $10,000, your home loan would be for $290,000. At a rate of 1%, your monthly PMI payment would be about $240 on top of your mortgage payment, and you would end up paying more than $25,000 in mortgage insurance before you reached the 20% equity mark.
Thats a lot of extra money spent on something that doesnt really benefit you. When possible, its best to wait until you can afford to put 20% down on your home so you can avoid having to purchase private mortgage insurance at all.
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Is Gold A Buy In 2022
Gold’s performance has been mostly red after mixed signals from the Fed and heavy volatility towards the holidays has taken its toll on the precious metal. Discussions and outlook remain uncertain as price action remains unpredictable.
Global market outlook
- Because analysts cant figure out a clear Fed decision on interest rates, they dont know how to price in both gold and the US dollar
- Global inflation adds to the bullish case
- Raising interest rates would negatively affect gold, but the expected rise is arguably still gold-friendly
- Investor sentiment usually favors the dollar over the metal
- Majority of retail traders are long gold
- Some traders like to follow sentiment and buy when mostly retail buys, however, its very common to see institutions doing the opposite of retail
- And this trend can continue for a long time
The market is too mixed right now to really pick a clear direction, at least for the entire year of 2022. Without a clear statement from the Fed, we can only measure the possibilities. It looks like the metal may start off bearish in 2022, after looking at the behavior in the COT reports along with the announcement from Biden to keep the economy open regardless of the new omicron variant.
These Stocks Will Continue To Surge: Will You Buy Them
No investment is without risk. Fortunately, the stocks mentioned above are leaders within their segments and continue to showcase strong growth potential. Additionally, the stocks also offer attractive dividends that will continue to grow.
In my opinion, adding one or more of these stocks would be a welcome addition to any well-diversified portfolio.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium service or advisor. Were Motley! Questioning an investing thesis even one of our own helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd.
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Stocks That Will Continue To Surge
Seasoned investors will note that volatility is never far from the market. In recent weeks, thats never been truer. Markets have been on a roller-coaster ride ever since the Ukraine crisis began. But not all of that volatility trends down. There are some stocks that will continue to surge as the crisis continues.
Here are several stocks that have seen growth in recent weeks.
The Gold/silver Ratio Favors Silver
Last, the gold/silver ratio can give clues about which metal might be the better buy at any given time. Especially when the ratio reaches an extreme
The gold-to-silver ratio averaged 47:1 in the 20th century. Its averaged 56:1 since 1968, so a ratio above that level makes silver a good buy relative to the price of gold.
You can see that the ratio sank to almost 30 at the peak of the bull market in 2011. It reached as low as 14 in early 1980. This compression in the ratio shows just how much silver can outperform its cousin gold. It also confirms it is undervalued compared to gold.
Add all up the reasons and silver just might be the buying opportunity of the decade.
Its hard to find an asset with a greater distortion between price and fundamentals. Not only is it a good hedge against crisis, the price will be forced up by a perfect storm of fundamental factors.
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Making Gold Part Of Your Portfolio
Rather than investing directly in physical gold, the average investor will likely want to diversify into gold by investing in gold exchange-traded funds or mutual funds. When it comes to these vehicles, its important to look under the hood gold funds might get their exposure to the haven metal by investing directly in physical gold , but some invest in gold mining companies , while other gold-backed funds rely on complex financial instruments to bet on the price of gold rather than investing in gold itself.
Gold mining companies share prices arent strictly correlated to the price of gold, since they have other operating and maintenance costs to deal with. But on the flip side, gold stocks have the potential to stay up even as the price of gold drops, and many gold mining companies reward their shareholders with dividends.
What’s The Difference Between Gold And Platinum
About 190 metric tons of platinum are mined each year globally. The majority of platinum production comes from two countries: South Africa and Russia.
Platinum is more difficult to produce than gold, as it’s located deeper in the earth and requires a more difficult purification process. It is a highly dense but incredibly malleable metal with importance for industrial applications, including in catalytic converters for cars and turbine engines for planes. It’s also used in medical devices such as pacemakers as well as in jewelry.
In 2019, 3,463 tons of gold were mined globally. Gold is mainly produced in three countries: China, Australia, and Russia. It is used in several industries, including dentistry, computers and other electronic devices, in the aerospace industry, and, most commonly, in jewelry and other artistic applications. Many governments and individuals store quantities of gold because of its perceived value as an alternative currency.
|CME Group and the Tokyo Commodity Exchange||CME Group and the Tokyo Commodity Exchange|
Here are factors to consider when it comes to investing in gold vs. platinum.
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