The first time that gold was found at the levels that we can currently observe was in 2011 reaching its record if it is the price expressed in dollars equivalent to 1920. And then the price was falling until December 2015 finding its minimum at a value of $ 1,046. The consecutive years brought the increases stopped with some deep corrections. In 2020 this king of precious metals started with a value of $ 1,517, but the real increases were yet to come. In March, due to the beginning of the global pandemic, panic began in the financial markets. Investors mass-sold assets with high investment risks, And that is why most financial assets lost a lot in the first phase of the pandemic in favor of the dollar – according to the stock market maxim that in the case of the Cash is king crisis, that is, money is king gold ira companies reviews. In the initial phase of the panic, gold was also down, from roughly $ 1,700 to $ 1,450, however investors were very quick to search for assets that have an opinion of being safe. And it should come as no surprise that the choice fell on gold, whose price as a result of increased demand began to rise to $ 2,063 an ounce in August. Then the price of gold reached its ATH, that is, all time high, the highest price in its history. However, with the panic related to the coronavirus receding, and in recent months with the announcements of new vaccines for the Covid-19 virus, gold has again begun to lose in favor of, for example, the stock market. Which shows us, that investors have stopped fearing about their finances and have again begun to move towards assets much more related to risk. Before we move on to the current gold situation, let’s first talk about the fundamentals of gold and how it affects its price in general.
Gold as the safe haven
It is worth mentioning why gold gains its value over time when anything else loses, so on the role of gold as the safe haven. When the economy and financial markets start to go bad, investors around the world are very risk averse. This causes them to withdraw their capital from high-risk investment assets seeking safe havens, including gold in the first place. Why is this precious metal the best recipe to protect capital at the time of economic downturn? Gold over the past two decades has been negatively correlated with US stocks and this means that when they rose, gold fell and vice versa at the time of market breakdown and stock market declines, gold gained its value.
The physical characteristics of gold
Gold also has some physical characteristics that cause investors to choose it to conserve their capital in uncertain times. First, gold is extremely resistant and immune to the passage of time, which makes it retain its characteristics over hundreds of years. It is also very malleable where it finds its use in industry, and this means that it can be freely transformed and made into ingots, coins or jewels. It is also significant that gold is very dense. The 12.5 kilogram ingot in the Good Delivery standard is currently worth $ 740,000 and measures only 25x7x3 (25cm long: 7 wide: and 3 high). And one of the most important characteristics of gold is simply its rarity and difficulty of extraction and treatment. These factors strongly affect its price. Gold cannot be created out of air, nor can it be printed as money, which is why it works perfectly to preserve its value over time. In addition, for the ounce of gold purchased in 1973 for 100 dollars and for the ounce currently purchased in 2021 for 1840, we could buy a basket of products and services for a similar price, and from this comes the conclusion that gold has been conserving in a very good way its value over time, while the dollar has depreciated against gold due to inflation.
What factors affect the price of gold?
Gold is of course priced in dollars, which has specific effects, because if the price of the dollar grows, the value of an ounce falls, and vice versa, if the dollar goes down, the price of gold grows, for this reason gold is also called “anti-dollar” What other factors affect the price of gold? The 3 most important are demand, supply and the behavior of investors that results at least from the behavior of financial markets. Contrary to popular opinion, investors are not the main recipients of gold, because more than half of the demand for gold is generated by the jewelry industry (especially in China and India, where gold jewelry is deeply rooted in the culture of these countries and of course this is a factor that has the real impact on the demand for gold).
For obvious reasons, the price of gold is also influenced by the cost of its extraction and the previous treatment – it will be determined by the AISC indicator (All-in sustaining costs), which tells us how much it costs to extract an ounce of material. Premium and is considered as the lower limit of profitability of mine work. It is worth bearing in mind that AISC does not include taxes and all other alternative costs and of course its value varies depending on the mine, here the location or availability of the bed is important, for example. This indicator fluctuates between 650 dollars and even above 1000 dollars an ounce and is published individually by the mines from which the gold is extracted. However, mining costs have a marginal impact on gold market prices.
This rarity of existence and the cost of mining this precious metal translates directly to the price of gold. So far around the world, 192 thousand tons of gold have been extracted, including in 2019 it was 3531 tons. For many years without changes, the largest gold producer has been China – in 2019 the extraction there was equivalent to 383 tons, the second and third place were respectively Russia and Australia (Russia in the last year extracted 329.5 tons while Australia 325 tons). Far behind are the United States, Canada, Peru and Ghana.
The current situation of gold
Now let’s move on to the current gold situation. If we treat the technical analysis, after the last quite strong drop to $ 1785, we have currently been able to see relief and for a moment we have touched the value of $ 1848 an ounce, but the exchange rate has rebounded and currently, on February 10 In 2021, it is moving between $ 1,834 and $ 1,852 an ounce. The value of $ 1860 is the resistance level for the rises and only after clearly crossing this level can we expect the return of the uptrend again. Whereas if we deal with the fundamentals, we are going to talk about the current opportunities and risks for the increase in the price of gold.
We start with the factor that speaks against increases in gold, as investors’ interest in protecting their capital against market risk clearly declined, and capital began to shift back to much riskier assets such as Actions. It is worth noting that the largest and most important global indices such as S & P500, NASDAQ and Dow Jones Industrial reached their ATH, that is, their all-time highs. Investors simply are no longer afraid of the pandemic, and the initial panic related to it depreciated significantly, much less a couple of vaccines have already been announced and governments have started vaccinating.
On the other hand, the really negative interest rates, which currently exist in most of the world’s countries, in combination with the very expansionary monetary policy of central banks, are two factors that generate inflation, which will probably not disappear with the pandemic. This translates to two things: first, people who want to save capital do not really have another alternative in the form of banks or bonds that currently has lower profitability than inflation. That is why depositing your money in gold seems to be the best alternative for people, who do not like the risk that the stock market entails, this of course can affect the rises in gold. In addition, as we have said, gold preserves its value very well that we can use against inflation. At the end,
These two factors, the positive and the negative, will greatly affect the gold exchange rate. It should also be borne in mind that the purchase of physical gold or the ETF fund that invests in gold are long-term investments and rather are not suitable for speculation. Taking into account these two factors it seems that gold in the short term perspective may lose its value because of trying to tame the pandemic, but in the long term perspective due to the soft monetary policy of the central banks it will be a good one. Investment. In my opinion it is always worth taking an interest in its price and considering having a part of your investment portfolio in gold.
The ways to invest in gold
We only need to talk about the ways in which we can invest in gold, and the most popular are: the aforementioned purchase of physical gold, purchase of the shares of the company that extracts the gold, purchase of the units of the ETF fund that Invest in gold and trade with CFD contracts that is contracts for difference through leverage. But it must be borne in mind that CFD contracts are characterized by great volatility that very often ends with the serious loss of the investor, especially if he does not have any experience that is why I would not recommend this way to beginner investors.