Should you invest in Gold
Throughout history, gold has always been seen as one of the greatest investments one can make. Currencies come and go even the Indian rupees or U.S dollar would probably be worthless someday in the future, but gold has never lost its value through millenniums.
Gold is used in a wide range of industries. Some make jewelry out of it; others use it in the manufacturing of certain electronic and medical devices. And others invest in it like you probably, since you are reading this blog.
As of April 2020, the price of the gold is $1657, significantly higher than it was let’s say 50 years ago($300). But the question is, is gold a good investment? Or to be more precise, has gold been a good investment?
Well, the answer isn’t really that simple. Since the abundance of the gold standard the world has been overwhelmed with paper currencies. It is even difficult to imagine a world where gold is a currency. But it has been once upon a time not that long ago.
Are gold stocks an honest investment?
Gold stocks and gold ETFs are the only way for individual investors to back a rising gold price. Investing in gold stocks is often a riskier, but also potentially more rewarding, way of investing within the valuable. Investors have three major options. they will buy gold stocks individually.
However, the modern financial system is so complex that we can no longer go back to the gold standard. But what we want to explore in this blog is, if you have some extra cash in your piggy bank, or other small types of saving should buy gold instead of stocks or even real estate.
But before we answer that question, we have to understand what drives the price of the gold first place. So, Besides having a unique and beautiful color, unlike other elements. Gold has always been the most trusted currency.
Gold has always been used as a way to pass wealth from one generation to another to preserve their wealth. Because unlike gold, paper currency has always been quite worthless in the long run, but gold has maintained its value throughout the ages.
The U.S dollar has been the most important currency for the last hundred years. Even today, countries all across the world have stacks of U.S dollars in case of emergencies.
But even the U.S dollar isn’t safe heaven because the value of the dollar falls based on the actions of the government. During the margate crises, the economy was in a deep hole, and the only way the government could save the economy was by injecting trillions of dollars into the economy to keep the dice rolling again.
But the pushed the investors to buy more gold and doubled the price of the gold in just four years(2008-2012). In fact, before that, between 1998 to 2008, gold prices have tripled.
Historically speaking, gold has proven itself to be an excellent asset against inflation since its price rises together with the cost of living. In fact, whenever inflation significantly rises, the price of gold simply soars.
Is Nugt stock an honest investment?
The Bottom Line
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And with the modern financial system, financial crises happen quite often. But a financial crisis means chaos, and that means uncertainty. When it’s not clear where the economy is headed, people want to feel that their wealth is safe, and that’s why they turn to gold.
During any crisis, gold often becomes the safe heaven that investors look up to. Since, they are confident that, no matter what happens, gold is going to keep its value. Even when there is a deflation, when prices are decreasing as it was during the great depression, gold prices rise.
But that’s not all, whenever the public loses confidence in governments, they also tend to turn their reserves into gold quickly. Because political instabilities can lead to chaos and financial crises. Gold prices, for instance, grew during this Brexit deal.
When world tensions rise, gold prices usually outperform all other investments. But one can argue, with all the technological advancement we have today, what is stopping us from mining more gold and a huge supply would drive the price down.
Well, even with modern technology, it’s not easy to extract gold. Gold mining production has not changed significantly since 2016 for getting gold. And the main reason for that is “easy gold” has already been mined; miners now have to dig deeper to access quality gold reserves.
And that is much more challenging and raises many other problems. Miners are exposed to danger or additional hazards, and the environmental impact is heightened. In other words, it costs more to get less gold. All these factors add to the costs of gold mine production and making it less attractive to investors.
Major suppliers of gold in the market since the 1990s have been the central banks, such as the FED since central banks keep gold as one of their significant reserves. But since the crash of 2008, even the central banks significantly stopped selling their gold reserves. At the same time, the production of new gold from mines had been declining since 2000.
And bringing a new mine into production can take up to a decade. Which all led to the rise of gold prices. The demand for gold might decline temporarily from time to time, but it always rises back because gold jewelry is part of many cultures, which means that there will always be a demand even when investors turn to other forms of investments.
But that hasn’t always been the case. Once upon a time, not that long ago, gold was the international currency of the world and wasn’t only used in the manufacturing of jewelry. I know that its difficult to comprehend that just a hundred years ago, people actually used gold as a currency.
Is Barrick Gold an honest stock to buy?
Barrick Gold Corporation - Buy
Its Value Score of D indicates it might be a nasty pick for value investors. ... Recent price changes and earnings estimate revisions indicate this is able to not be an honest stock for momentum investors with a Momentum Score of F.
To understand how did we entirely moved out from gold and are completely dependent on fiat currency. We have to take a look at history. For over 5000 years, gold with its scarcity and beauty has captivated humankind like no other metal. For the first time, gold was used as solid coins around 700 BC.
Before that, gold had to be weighed and checked for purity when settling trades. But these coins were not without their problems. They have been used in different shapes throughout centuries. However, the biggest obstacle was that gold was simply too scarce, and digging it from the ground was much more difficult given the technology they had in the past.
To understand how scarce was gold back then. In the 16th century, Spain extracted so much gold from the new world that it raised Europe’s supply of gold by five times. Of course, paper money was gaining some popularity back then, but gold was still the main instrument of the monetary system.
But as the world economy started to rely on debt more and more, paper money slowly began to dominate world economies, but it had its fair share of problems. So the world came together to create the gold standard at the end of the 19th century (1871).
It actually worked pretty well, inflation was at around 0% and the world found a common language to trade until the world decided to destroy each and started world war I. Even though the gold standard did not collapse, political alliances changed; governments began to run out of gold, and national debts soared, which pushed the world to move to something more flexible to base on, the world economy.
Especially since gold supplies continued to fall behind the growth of the global economy, which ended in a few nations holding most of the gold reserves such as the United States and Britain.
The great depression (1929) made it only the worst. War debts forced many countries to abandon the gold standard. Even England had to get out by 1931. And guess what happened after world war II, the U.S had 75% of the world’s monetary gold, and the dollar was the only currency still backed directly by gold.
But as other nations began to rebuild their economies, gold slowly began to leave the United States, especially with the war in Vietnam. The U.S went into a deficit and was afraid that it would run out of gold. Countries like Belgium cashed in dollars for gold, and many others were intending to do the same.
Which pushed the united states to completely abandon the gold standard in 1971, which was the end of the gold standard. The truth is, although gold has always played some role of currency for thousands of years. A true international gold standard existed for around 50 years (1871 to 1914).
And today, the price of the gold is determined by the factors we have discussed earlier. However, the main question remains, has Gold been a good investment?
Well, the answer is both yes, and now, it highly depends on the time frame. Sometimes it outperformed other investments, and other times investing in stocks or bonds would have been a much better option. Gold might be a solid investment, but its definitely not the best all the time.
If we take a look at the last 15 years. Yes, gold (278% increase) did actually better than the stock market(173%), but if we take a longer time frame such as 30 years, then the stock market has significantly outperformed gold.
The Dow Jones Industrial Average has gained (839%) while gold only (280%). Even returns from corporate bonds ($450) have been higher than gold. However, if we take even a longer time frame, such as since the abundance of the gold standard(1971), gold(4,500%) has outperformed the stock market (3,221%) by a reasonable range.
Are they going to be a good investment during this crisis, well, its impossible to say, maybe it might be, maybe not. The only time to tell. Hope you guys you enjoyed the blog
