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The gold price was at $1933 an ounce in September 2020 and some experts estimate it can grow beyond $2000 in the coming months.
In August, the rate was at $2075 that indicates a 26.5 per cent gain YTD(year to date) and 30.9 per cent gains since the 52-week low in March, in contrast, the S&P 500 gained 6.3 per cent YTD.
The rally represents the highest gains as investors find it safe to invest at the time when the markets are volatile.
Due to the impact of COVID, several global economic activities suffered some kind of impediment but the investors seeking options in hedge funds and Wall Street remained extremely bullish on gold and some predicted absurd levels like over $4000 an ounce in the coming years.
The Bank of America Merrill Lynch said it expects its value to hit $3000 by early 2022 and the billionaire Thomas Kaplan expects the rate to cross $5000.
Economists have mocked gold in past and some of the top investors rejected it against global currencies stating the metal has nothing to do with economy or industries but even those who were rejecting gold, are buying it now and they are expecting at any level the gold prices UK will go up in the long term.
The main reason for this is the loss of value and credibility of currency as a monetary unit where the central banks are supplying monetary units which far exceed the amount that can be absorbed into the markets and now the value of cash is declining. Gold has limited resources and it cannot be supplied in excess.
Further, there is anxiety over the global dollar-based trading where US had abandoned gold for strong dollar, which served as reserve currency only on the terms that it will not lose value in the long term, nevertheless, the US currency has become volatile and there is the risk of currency war between China and US where the devaluation of certain monetary units can create fluctuations in the global commerce and create turmoil.
Gold is a yellow metal that is called Aurum (Latin) where its names mean shinning dawn or glow of the sunrise. It is a highly ductile metal as 28 grams of the metal can be stretched into 8 kilometres.
Its threads are used in embroidery. It is highly malleable as it can be hammered into thin sheets. It is considered to be one of the most malleable elements that can be beaten into a 300 square foot sheet. The sheets can be beaten into thin layers where it can become transparent at one point.
It is heavy and dense and is non-toxic and its flakes can be added to foods or drinks. The flakes and the small pieces are also used in electronics and beautification products.
It is a noble metal which is unreactive and it resists degradation by air or acidic solutions. While acids can dissolve, a special mixture of the acids can be used to dissolve gold metal.
The amalgamation of metal like copper can make the metal look rose to pink and sometimes, there metal oxides are added on the alloy surface to get different colours like blue or purple or black.
The weight of the metal is measured in troy ounce (1 troy ounce is 31.10 gms). Karatage is used to measure the purity. The purest form is mostly 24 karats and 18 karat version is 75 per cent pure metal and 14 karat is 58.5 per cent and 10 karat is 41.7 per cent pure.
The metal is known since historical times for the natural radiance and these days it is available in a diverse palette. The process of mixing many such metals to get 24 karat helps to get malleable and durable composition.
It is used to make jewellery and is, sometimes, combined with other precious metals to get a stable composition that can be used to make jewellery. Such a version can be used to change the colour of gold.
Such items from different countries have different standards for karate like the minimum accepted cartage in the US is 10 Karatage and the most popular is the 14 Karat.
In France, Austria, the UK, Ireland and Portugal, the lowest is 9 Karat and in Denmark - the lowest legally permitted Karatage is 8.
There are various other risks like a bubble in the bond market which is getting bubblier and the value of negative bonds continues to expand to $50 trillion. Investors are calculating the risk of all the turmoil where they believe the currencies will be at their bottom since 1971 and stock markets will soon collapse. Still, in America, some analysts believe the gold prices UK can get back to $700 an ounce, although, there are factors which may support the growth in price of the yellow metal
The global economy is undergoing volatility and the price of yellow metal can go up and the price of paper money can decline. Gold prices UK remains constant with the exceptions of regular fluctuations where it represents the purchasing power of the buyer and the value of paper money that is in circulation is zero. When we measure the metal in the dollar it tells how weak the currency is.
The global bubble burst is expected soon, which can be triggered by specific events where the fall of Lehman was one such event in 2008, though it was not the reason for the financial crisis.
In the futile attempt to save banks ECB is preparing to print €10s of trillions and such reduction in currency value can only lead to hyperinflation like it is happening in Venezuela where the economic collapse created hyperinflation and Argentina is expected to follow the same.
The bubble era is working on massive accounting frauds where the companies are cheating through their accounts. Some of the examples of accounting frauds are Enron and Madoff.
Manipulations in financial numbers will lead to misunderstandings which raise the risk of a major crisis. The markets in China and India are buying very less and in countries like Indonesia and Thailand, the buyers are buying from the local markets.
Gold is not related to physical demand but physical wealth preservation techniques are based on holding the metal as it provides insurance against such volatility and frauds.
Gold and silver are the safe havens which can help at the time of heightened economic uncertainties.
All the investors put some per cent of their money into precious metals as it can rise exponentially and no other precious metal has been able to match the growth rates of gold.
It cannot be destroyed easily if stored in physical form at safe storages.
It can be bought or sold anywhere in the world at the same rate.
It retains value during an economic crisis, even at times when the paper money loses its value.
It can be transported from one place to other and its value increases after regular interval of time, its value, not often, decreases like shares and bonds.
The World Bank has been predicting a crisis that can bring the global economy into the worst recession since WWII. The global pandemic has certainly created a situation where demand for safe havens have increased and such markets are expected to flourish at the time of economic crisis as other safe options like bonds offer flat or negative returns.
The global economies were facing issues even before the pandemic hit markets where the world's central banks cut interest rates to historical lows and the investors had to turn to such options in the low-interest environment, at the same time as, the interest rate – gold nexus has been weakening since the 1970s after the US abandoned the gold standard. Nixon had to change the dollar-gold standard at the time when the US was running out of the necessary gold to back the paper money it had printed.
Gold supply has no direct relation to the economic performance of a mining country and after the discovery of huge gold reserves in South America; the supply of yellow metal has been rigid.
Its demand can vary but it provides a stable source of earning to the country. Many countries were able to escape the Great Depression of the 1930s by unhitching their money value against gold.
Space-based research and mining programs have been started by some companies who expect to conduct mining programs on other planets and some believe that aliens come to earth in search of gold.
In South Africa, the researchers at the first UFO Science and Consciousness Conference claim a small group of families whose origin is traced to be the first of mankind had relations with aliens, and all governments and institutions were instruments to the will of this small group of individuals.
They claim that the South African government was governed by extraterrestrials' beings as the country was rich in gold and diamonds, at the same time as humans were also part of the galactic population. These extraterrestrial beings are obsessed with gold and they come to earth looking for it.
Gold gained above $2000 in August 2020, which is one of the highest since April 2013 at the same time, silver pricesjumped 3.2% to $26.84 an ounce. Silverhas risen by 50 per cent in the year 2020, which means, it has been outperforming the yellow metal and still it is trading at a ratio of 75: 1.
The long term average of the two metals' price to weight ratio has been at 60:1 which indicates there is scope for silver to gain more. Both the metals are known since antiquity. Silvercan be divided into smaller units; it is highly durable, portable and cognizable.
Both metals have served as a reliable store of value where it has retained the purchasing power relative to other goods, services or commodities.
They are considered tangible and many high net worth individual and royalties invest in such options instead of abstract financial vehicles. Historically, both metals' coins were used for overseas trade and settlement of international debts in the 18th and 19th century.
Silverwas considered highly crucial in international trade in the historical times in regions like the Middle East and North Africa in the 19th century when Arab merchants traded in such coins.
Many such large coins were sent to China in 1800 to conduct business activities. In the US, it was recognized as legal tender until after the Civil War.
But there are certain drawbacks related to the silver investment which is subjected to VAT in case one takes its physical delivery, whereas, gold is VAT free in the UK and the EU. There are some European countries like Switzerland where one can store silver to get the VAT-free option.
It is rare throughout the universe as its atom contains hefty - 79 protons and 118 neutrons. But it is more abundant than large diamonds and some other elements. Rarity is not the only decider of the value of the metal.
It is only one side of the supply and demand theory where the demand can be relatively higher for gold than for silver, which can affect the price.
The central banks are putting stimulus into the financial markets to support global economies which have been hit by the COVID pandemic. The price of the yellow metal was at a record high in the last few months because it retains value over time as compared to paper money but it lacks to give regular interest like government bonds.
It is bought by investors mainly for the gains incurred for holding. Hence, investors can see a migration from low yielding cash and bond to such long term store value.
Gold is widely used in jewellery and it drives prices more so because the demand is high.
Some market buyers consider commodities as most valuable assets as it holds intrinsic value and works as a safe store of money even at the time of crisis.
Having $1000 in the bank would not prove to be the same as yellow metal because paper money will lose its value by over 50% if it is held for 5 to 10 years.
Buying precious metals for long term investment provides a hedge against inflation.
The metal is widely known for historical significance where it has proven to be wealth insurance. The price of the metal remained at a record high at the time when the governments around the world are running huge debts and they are adopting methods of qualitative easing or money printing to lessen the economic shock.
Gold coins were extracted in 550 BC by the King Croesus of Lydia (an area that is now part of Turkey). It was highly treasured as it helped in increasing commerce and the emperor Augustus ordered to formally accept gold for the transaction.
In 1971, the metal was made the basis of all the global currency transactions where governments could convert the notes into gold at a fixed rate.
According to Warren Buffet, the investment made in S&P 500 of $10,000 in 1942 would turn into $51m in 2018, and the same investment in gold will grow to $0.4m, which means, the precious metal might have done well if invested for the long term, but stocks outperform it if invested carefully and regularly.
In 1971, the US abandoned the gold standard that allowed converting notes and coins for gold. Today all the currencies are fiat currencies, that is the declared legal tender by the government and it does not have any intrinsic or field value.
Paper currencies are not backed by any tangible assets. The key difference between yellow metal and paper currency is that there is no physical limit on the supply of paper notes. The government can add it anytime, even without having a backup to support its value.
The value shows the buyers have faith in the economy that has been offering the currency but when the country faces economic downturns or suffers from economic mismanagement or political upheaval or civil crisis, the value of currency declines in the global markets.
Market analysts believe the current economic issues and struggling banking sector may find it difficult to remain profitable when the interest rates are low, and this has been helping gold prices.
Recently, Buffet bought shares in the gold miner Barrick Gold and sold shares in some bank stocks. He is known for taking short term opportunities. In 1997, he had similarly invested in silver and he expects to generate cash flow through such opportunities.
For investors, it can be a bad idea to put all money in stocks. Every investor should diversify and prepare for emergencies. Gold price tends to increase when the markets decline.
Most investors who buy it have a long term perspective where they gain value about inflation and since inflation has considerably risen in the last 50 years; its value continues to increase.
Some investors diversify when the government bonds yields are low or when the alternative offers become risky.
Bondshave a role in the diversification and one can invest in some retirement plans. The price of bonds grows when the interest rates and economic growth is low. It is like insurance against volatile markets and economic conditions.
The Federal Reserve balance sheet continues to expand and the government debt is continuously increasing and it is expected that easy money and debt will cause uncurbed inflation.
However, the yellow metal continues to be a speculative asset and there can be a huge swing in price anytime. Most institutional buyers allocate in the range of 2 to 5 per cent to it.
Gold is not the rarest metal instead platinum is rarer. But it is hard to find and extract it in large quantities.
Most of the gold and silver that is found in the earth's crust is alloyed with other metals and compounds, and the process of separation of pure metal makes it expensive.
The metal is corrosion resistant and is considered to be highly desirable as is used for decorative purposes. The rarest form of the yellow metal is the Ram's Horn that was found in 1887 at a Colorado goldmine. It is 4.7 inches tall piece of gold that weighs roughly half a pound.
It is split into 3 curling tendrils and it represents the rarest forms that formed the part of the mineral collection at Harvard University's Mineralogical and Geological Museum.
In historical times, uncontrolled inflation, and high-interest rates with a controlled mining operation led to a rise in the gold price and decline in the dollar.
Now the governments are holding rates at a low and allowing inflation to run above target to help recovery and reduction of the debt burden. This means the interest rates after inflation are expected to remain low or negative for some time that supports growth in precious metal.
Gold remains uncorrelated to markets and it can be used at the time of crisis as it retains and gains during the economic crisis but the investors should be careful as the price hits £2,000 mark, although, is still below the inflation-adjusted peaks of 1980 value that is equal to $2,200, if compared to today's conditions where the current supportive environment helps its rally and it would not be surprising if the level is crossed soon.
While there is a chance of further growth, the investors should be aware of and change expectations with changes like a strong economic environment, and higher interest rates can lead to a decline in the price.
The chart of gold shows there has been certain phases in the economic history of the planet when the value of yellow metal increased significantly.
The price of the metal when it was untethered to the US dollar in 1971 increased 40 times, although, the value of the dollar also increased 40 times in 2011.
The price inflation data finds the consumer price index increased 6 fold in the last 50 years and it depicts how inflation can erode the purchasing power of buyer over long periods.
Both - gold and silver are great diversifier and it is not correlated like bonds or shares, but there are certain drawbacks as it has little practical use and gives no income.
In the normal economic conditions, it can become ineffective in the portfolio and certain cases, the unpredictability in market factors can lead to demand imbalance or change the geopolitical factors, which can hit the price.
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