Take a deep dive into the world of physical gold and silver investing with financial market insiders and explore trading and saving opportunities with precious metals experts.
With inflation raging and the price of gold seemingly not keeping pace with rising rates, articles suggesting that gold is no longer a valid hedge against inflation or preservation of wealth assets have proliferated in the mainstream financial media. However, as I'll show, nothing could be further from the truth. While the price of gold is subject to short-term volatility, an examination of the data over a long period suggests that gold is a perfect ‘hedge’ against inflation. Inflation and gold The term "inflation" is commonly used in reference to rising prices as measured by the Consumer Price Index (CPI). However, this is not technically correct. The economic definition of "inflation" is the rate of increase in the money supply in excess of the rate of increase in economic wealth output. As Milton Friedman famously said, "inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." This aptly describes Central Bank monetary policy in relation to wealth output since Quantitative Easing - aka "money printing" - commenced in late 2008. Price inflation is thus caused by inflation of the money supply. The concept is pretty simple: when the money supply increases at a rate in excess of wealth output, there are more currency units relative to the supply of "wealth units," where wealth units represent the number of goods and services supplied by an economic system - leading to more money "chasing" a relatively lesser amount of goods and services. When this subsequently occurs, the law of supply and demand dictates that price of the wealth units will rise. Let's take a look at the data. The chart below shows the price of gold vs. the CPI and the M2 money supply going back to 1990): Gold vs Inflation vs money supply (M2) How does gold hedge against inflation The chart above shows that, over the last 32 years in its totality, gold has worked nearly perfectly as a hedge against both price inflation and money supply inflation. Gold underperformed both inflation metrics from 1996-2001, but this period of time was the final culmination of a bear market in gold that began in 1980. Between 2001 and late 2011, gold outperformed as an inflation hedge, more than compensating for the previous period of underperformance. Since 2016, gold has performed spectacularly as an inflation hedge. Further supporting this finding, Reuters published a study by the World Gold Council earlier this year which looked at gold as a hedge against inflation. The findings support my conclusion above: "Gold is a proven long-term hedge against inflation but its performance in the short term is less convincing." In other words, because of its commodity price volatility attribute, gold might not be a perfect hedge against inflation in the short run, but works well as a long-term hedge against price inflation caused by the devaluation of fiat currencies from money printing. Gold, money supply and CPI chart The chart above, prepared by the World Gold Council, shows the compounded annual growth rate (CAGR) of gold, the U.S. M2 money supply and the U.S. CPI going back to 1971, where all data is indexed to 100 in Q1 1971. Again, while there was a brief period in the late 1990s to 2001 in which the price of gold underperformed inflation, over the entire data series, gold outperformed both price and monetary inflation. Why is gold an inflation hedge? That's a question for which there is not a scientifically proven explanation beyond the actual statistical data observations. Over extremely long periods of time - as in centuries - the increase in the supply of gold annually roughly is equal to the long-term growth in global economic output. Both were shown to increase approximately 3% annually ("smoothed out" over decades and centuries). Issuing currency in varying units of denomination enables the use of gold as a reserve asset against the issuance of that currency and enables the fungibility of gold - constraining the growth in the supply of currency (money) to the amount of gold that is produced. This can then be used to back currency limits the ability of Central Banks and Governments to "oversupply" currency. However, since 1971, when the gold-backing of the U.S. dollar as the global reserve currency was completely removed, there have not been any real constraints on currency creation. Since 1971, periods of price inflation have become problematic, and it is during those periods when the price of gold not only served as an inflation hedge but also outperformed the rate of inflation. Does gold beat inflation? With gold being an ideal way to offset rising inflation rates and provide stability to a portfolio, investing in the right gold products is also an essential consideration before looking to hedge against inflation. There are many different ways to access gold as an investment and hedge against inflation, including purchasing physical gold bullion or investing in gold-backed digital assets. Platforms such as Kinesis Money offer a good way to invest in fully allocated physical gold and silver bullion, with the absence of storage fees, and additional revenue in the form of yields. Kinesis offers instant access to physical bullion through Kinesis gold (KAU) and silver (KAG), digital assets backed by gold and silver bullion. The platform also offers everyday utility to precious metals through the Kinesis Virtual card and enables you to use your physical gold and silver account as currency. For those who prefer physical gold coins and bars in their possession, the Kinesis Bullion store offers investment-grade coins and bars at extremely competitive pricing. Whichever avenue of gold investment an investor settles upon, history would suggest that the precious metal will offer them protection from inflation in the long term. Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The views expressed in this article are those held byDave Kranzlerand not Kinesis.
In this article, two popular investment vehicles are explored: gold and stocks, with a focus on comparing the relative benefits and considerations of both. While gold is generally viewed as a lower-risk asset with the capacity to store value in the long term, stocks are often perceived as a riskier asset class due to their volatility, with the potential for granting high returns. Whether gold is a better investment than stocks or vice versa, depends on the needs of the investor. Does the investor prioritise wealth preservation? Growth? and what is the time horizon? Find out more about these investments down below. Advantages to investing in gold Gold is a good fit if your priority is to preserve the value of your wealth. Perhaps now more than ever before, people are now looking for an asset that stores the value of their wealth. Gold is unique among other asset classes, having historically served as a proven hedge against inflation. Since the abandonment of the Gold Standard in 1971, when President Nixon unpegged the quantity of dollars from gold reserves, inflation rates have been on the rise. The prospect that inflation will be a prolonged issue makes gold’s property as a hedge increasingly attractive. Gold has stood firm throughout history. Consider the Great Depression, the 2008 Financial Crisis, and the effects of the COVID-19 pandemic – during all of these events, gold prices hit record highs. Even in the midst of liquidity draining the US economy during this year’s central bank quantitative tightening policies, gold has shown remarkable resilience. Gold is attractive for investors with longer investment horizons. Being a safe haven asset doesn’t mean gold can’t generate returns; in the medium to long term, gold has tended to demonstrate a significant upside. For example, from 1990 to 2020, gold prices rose by about 360%. Advantages to investing in the stock market Investors looking for large returns may select stock investment - while taking on additional risk. Over the same period (1990 to 2020), the Dow Jones Industrial Average (DJIA), a widely-used measure of overall stock market performance, rose by 991%. While stocks are considered riskier investments than precious metals like gold, the stock market can present attractive returns if short-term gains are sought after. For example, during the Federal Reserve’s quantitative easing program following the COVID-19 pandemic, the S&P 500 doubled in the shortest time frame in history, going from 2237 to 4479 in just under one year. When investing in stocks, companies often pay out dividends. Dividends are paid out when companies channel a portion of their profits back to their investors, which can be compounded when reinvested. Dividend yields often vary depending on company profits and something to consider is that not all companies offer dividends in the first place. Nonetheless, investors may find the steady cash flows attractive. Gold vs Stocks It might be tempting to oversimplify, but the attributes of assets like gold and stocks are not dichotomous. Both the stock market and the gold space are extremely diverse. Even within each space, there are a variety of assets with different risk levels and expected returns. For instance, many see the appeal of hedge funds – where stocks are actively traded to maximise short-term gains. While others prefer to invest in index funds that track the performance of indexes, like the S&P 500. In these two examples alone, the risk and potential returns vary greatly - even within the stock market. Within the gold and precious metals space, some choose to invest in gold stocks. When investors purchase such stocks, they own some equity in a gold company; these stocks often move in tandem with the price of gold. As is the case with those who trade Gold ETFs, many attempt to reap the returns of the asset’s price fluctuations, while opening themselves to the risk of not owning the underlying physical asset. The gold-backed crypto offering of Kinesis Gold (KAU) on the other hand, combines all the benefits of precious metals ownership with steady passive income in the form of a monthly yield paid in physical gold. When investors buy physical gold through Kinesis, they buy gold that is stored in Kinesis’ secure vaulting network, which is owned in the investor’s name. Just by purchasing and holding said gold, investors can receive yield, as well as benefitting from the asset’s haven quality in a time of record high inflation rates, globally. Is gold a better investment than stocks? The decision to invest in gold or stocks ultimately depends on the priorities and risk tolerances of the individual investors. While investors with a high disposable income and a large appetite for risk, may prefer stock market investment, those seeking to minimise risk while recouping gains will likely prefer to choose gold. In either case, some level of diversification could be wise. In the words of the hedge fund manager Ray Dalio, “diversifying well is the most important thing you need to do”. A diversified and nuanced portfolio may be the linchpin for investors to achieve their goals. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
The precious metals sector has had a big run since November 3rd, with gold up 8.7%, silver up 10% and GDX up 21% (through to November 16th). The sector is due for what I believe will be a mild pullback. In fact, I would welcome a shallow pullback to consolidate the big move, reset the momentum indicators (RSI/MACD) and thereby set up the next move higher. For the better part of this year, the prices of gold and silver have been moving in correlation with the directional movement of the stock market. When the market heads lower, the hedge funds have been shorting gold and silver COMEX futures, along with SPX futures. They cover some portion of their shorts when the market bounces. This chart shows this relationship: The chart above plots the price of gold (shown by the red line) vs the S&P 500 (shown by the blue line) over the last year. The two markets were mildly inversely correlated up until mid-March (blue vertical line). After mid-March, the two markets have been moving almost in lock-step. I recall vividly thinking to myself in mid-April that the decline in the precious metals had become its most intense at any time since the precious metals sector downtrend began in August 2020. I also believe that this amplification of the selling in the sector might be the final leg to a bottom. The fact that the hedge funds were shorting COMEX gold and silver futures starting in the spring can be tied to the weekly CME Commitment of Traders ("COT") report. The Managed Money COT segment (hedge funds/CTAs) has been dumping gold and silver gross long positions and adding to gross short positions. The COT report showed that the Managed Money cohort went net short on COMEX silver futures in July and net short on COMEX gold futures in August. In the past 20 years, mostly though not in all cases, when the Managed Money COT cohort has been net short on COMEX futures, it has signalled the end of a decline in gold and silver. While the Managed Money cohort has been net short paper silver several times over the last 20 years, it is rare when the cohort is short on both gold and silver COMEX futures - like now. Circling back to the correlation between the stock market and the prices of gold and silver, the correlation illustrated in the chart above occurred in the final move to a bottom in the precious metals sector in the spring/summer of 2008. The chart below shows the gold price vs the S&P 500 from 2007 to the present on a weekly basis: This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
The chart below shows the gold/silver ratio ("GSR") dating back to December 1974. Every time the GSR has surpassed 80, it has signalled a bull move coming in the precious metals sector. Here, the chart shows the percentage move higher in the price of silver in the said timeframe: I was aware that the sector rallied when the GSR reached a relatively high ratio, but I was not aware of the remarkable consistency of that pattern. Usually, when the sector feels the most "helpless" is when an unforeseen event sparks a bullish reversal. This period of time is quite similar to the final few months of the precious metals sector sell-off of 2008. Back then, gold and silver hit a bottom when it felt like the path of least resistance was lower still. They began to move higher in the last week of October and mining stocks followed a week later. The economy, including a crash in the housing market, and the financial system were rapidly falling apart - in a strikingly similar way to the current situation. If the Federal Reserve flinches - even a little - on its monetary tightening path, there's potential for an explosive upside move in gold and silver. Even in the absence of a change in direction in the Fed's monetary policy, the GSR along with the relative long/short positioning in COMEX gold and silver futures by the banks and managed money funds, are signalling the potential for a significant bull move in the precious metals sector. The shift to a net long position in silver contracts by banks, and a corresponding net short position by hedge funds, since the middle of summer has been well documented. However, the shift by the hedge funds to a rather large net short position in COMEX gold futures has not received as much attention. The hedge fund money that trades momentum swings in the markets appears to be shorting gold futures as the US dollar index rises. The footprints of this pattern can be found in the COT (Commitments of Traders) report data. I looked at the weekly COT data for 2022. The dollar bottomed in the second quarter of 2022 and began a relentless move higher in response to the Fed's move to tighten monetary policy. The net long position in hedge fund gold contracts peaked in mid-March and was reduced rapidly into a net short position by mid-July. At the same time, the banks were covering their gross short position, and thereby rapidly reducing their net short positioning. I believe the COT positioning signal is more powerful when the hedge funds are net short in both metals' futures. If the dollar loses steam and rolls over, whatever the source for the spark that hits the hedge fund short position "dry tinder" will unleash an avalanche of momentum-chasing, short-covering by the hedge funds. These funds will flip back to being positioned net long. The banks likely will sell futures contracts into the hedge fund buying in an effort to slow down the upside movement in gold and silver. At the same time as the COMEX shorts scramble to reduce their upside risk exposure to gold and silver positions, I believe there will be an intensified effort to convert fiat currency into physical gold and silver, along with an acceleration in the removal of this metal from bank custodial vaults in London and NYC and into private safe-keeping arrangements. A noticeable reduction in vaulted gold and silver in London and New York has been occurring for several months. I refer to this as a "low-grade gold rush". At some point, this will transition into a "frenzied gold rush" - similar to that which occurred in 1979. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
Silver has endured a volatile year, trading above $26 an ounce in March while sinking below $18 an ounce at the start of September. As we enter the final stages of the year, attention turns to where the price of silver is headed in 2023 and beyond. Silver price predictions With silver’s recent resurgence seeing it climb back to near the levels it started 2022 on, attention is switching to where the price will head in 2023 and beyond. With the macroeconomic clouds caused by central bank interest rate rises starting to lift, silver’s bullish fundamental case is starting to gain more attention. Ole Hansen, Head of Commodity Strategy at Saxo Bank, sees a looming shortage of supply in both Europe and China and now favours silver over gold in the bank’s latest quarterly outlook. Delegates at the LBMA’s conference in Lisbon in October also saw plenty of upside potential for silver, with their average forecast for the year ahead coming in at $28.30 an ounce on the back of a tightness of supply exacerbated by unprecedented demand. In contrast, the World Bank took a more conservative view, seeing silver as continuing to trade around its current levels for the foreseeable future with its forecast of $21 an ounce for both 2023 and 2024. As ever with markets, predicting the future is nigh on impossible. Who could have planned for a pandemic or the outbreak of war in Europe for example? Yet as 2022 draws to a close, there look to be more reasons for silver to gain in 2023 than for it to fall. Silver price history Silver has a history dating back centuries when, for a long period, it was the currency of choice for global trade before it was displaced by gold, then for the fiat currency system in place today. The precious metal has always traded at a significant discount to its peer, gold, with silver’s record price of $49.48 an ounce achieved in 1980 compared with gold which surpassed $2,000 an ounce earlier this year. As well as trading at a much lower price than gold, the size of the silver market, while still substantial, is significantly smaller than gold, making it more prone to volatile price swings. Most famously, this price volatility caught the world’s attention during the silver squeeze of early 2021. A wave of buying from retail investors in late January of that year, sparked by chats on the Reddit forum, forced institutional investors to exit short positions they held against the metal, which in doing so caused the price of silver to climb higher still. On February the 1st 2021, silver breached $30 an ounce before the momentum ran out and the price quickly dropped back a few dollars. Silver’s rally to challenge its all-time high in 2011 also didn’t last with the price plunging below $35 an ounce in a matter of weeks. 2022 has also proven a volatile year for silver with the price suffering a multi-month slump from its March high in excess of $26 an ounce to trade below $18 an ounce in late August and early September. Having reached its nadir earlier in the year, silver is now enjoying a strong finish to 2022, setting up the possibility of another rally in 2023. Factors which affect the price of silver Having outlined the historic volatility of silver’s price, let us now delve deeper into the factors that drive those movements. This year has underlined how prone silver is to the macroeconomic environment with the precious metal suffering as a result of a series of interest rate hikes implemented by central banks across the world, in particular the actions of the US Federal Reserve. The appeal of holding a physical asset like silver diminishes at times of rising interest rates as it doesn’t offer a yield, with other interest-paying assets such as bonds proving more attractive instead. However, Kinesis has evolved the offering of physical silver by bringing forward digital Silver KAG, which generates a monthly yield for all who hold or transact with their silver on the Kinesis Virtual card. Silver is also considered, like gold, as a haven asset which investors often seek out as a safe place to store their capital at times of increased risk on equity markets. As with commodities more broadly, silver is seen as a hedge against inflation with its finite supply, meaning it holds its value over time. As well as macroeconomic factors, silver is also driven by the fundamental elements of supply and demand. Silver is used in a wide range of industries, particularly those in the electronics sector where its high conductivity and durability are sought after. As a precious metal, it also attracts demand from the jewellery industry, albeit in much lower volumes than gold. It is this industrial appeal that has lent silver a bullish fundamental outlook with the metal used in a number of the key sectors as the energy transition and tech revolution progress onwards. Silver is set to be in hot demand following the rollout of 5G, with the metal’s role in the electronic applications used in the technology requiring an extra 16 million ounces of silver by 2025 and as much as 23 million ounces by 2030, according to the Silver Institute. With silver also a key component within photovoltaics for solar panels and for batteries in electric vehicles, 2022 is set to be a record year with demand in excess of 1.1 billion ounces, according to the Silver Institute. Finally, silver’s price is also driven by investment demand. This too is also on the rise with holdings of silver in London vaults sinking to their lowest level on record in October 2022 at 26,502 tons, according to the London Bullion Market Association. These outflows were driven by the continued strength of coin and bar demand, especially in the key US and German markets, according to Philip Newman. In the case of a 'silver price reset', says Andrew Maguire, in the latest episode of Live from the Vault, 'COMEX is in the crosshairs for physical delivery'. Maguire explains how there is not enough registered silver to be delivered, which could force the market makers holding eligible silver to put that up for sale, and convert otherwise undeliverable bullion holdings into 'registered category', thus making it deliverable. In terms of the valuation of silver, the upcoming months might be a pivotal moment for the metal, where a readjustment in price could begin reflecting its true value, rather than one governed by paper market bets. Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience inwriting about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewableenergy and the challenges of avoiding greenwash while investing sustainably. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis
Silver has endured through centuries as a sought-after asset, first as the de facto trading currency before evolving over time to become an investment product. In addition, the metal is now widely used in a variety of cutting-edge technologies. So as an individual looking to gain exposure to the silver price or looking to buy physical silver coins or bars, what can be the best ways to gain access to the market? Different ways to invest in silver There are a few different options for investors looking to invest in silver. The most straightforward of these is to hold the physical metal. This can be held in bar or coin form, with this highly liquid global market enabling individuals to have a clear entry and exit price around the world when the time comes to add to their holdings or sell them. With the price of silver trading at around $20 to $30 an ounce, buying a one-ounce coin offers a very low entry point for someone starting out on their investment journey. While the price of silver coins typically closely tracks the underlying spot price of the physical metal they are made of, some of the rarest vintages or particularly decorative coins can trade at a significant premium to the spot price. Silver bars are the other main way an investor can buy the physical metal. Bars are larger in size and far less decorative than the coins, but the simplicity of the production allied to the larger size enables bars to benefit from economies of scale. This results in bars typically trading even closer to the spot price than coins. Coming soon, Kinesis will offer a new range of minted bullion coins and bars at their online bullion store, at some of the lowest prices in the precious metals sector. Aside from physical ownership, the last few years have seen a surge in the range of exchange-traded funds, or ETFs, available. These funds offer exposure to the silver price with the holdings backed up by an equivalent amount of the physical metal. However, buyers of an ETF don’t gain ownership of silver, but rather, shares in the fund. As well as a small administrative charge levied for running these funds, potential investors should also factor in the element of counterparty risk that these funds have in contrast to physical silver itself. Buying shares in the miners that produce silver is another way of gaining exposure to the silver price with the fortunes of the miners often closely mirroring the relative performance of the metals they are bringing out of the ground. With some of these miners also paying a dividend, holding mining stocks has the added potential benefit of providing a return for investors. Is silver a good investment? Silver is exposed to the same fluctuations that impact commodities and equities markets. As such, the price can go down as well as up, as seen this year when silver dropped from about $26 an ounce in March down to below $18 an ounce at the start of September. While silver has suffered in recent months mainly as a result of the Federal Reserve implementing a series of large interest rate hikes which has lessened the appeal of the non-yield-bearing precious metal, the longer-term outlook is more bullish. Silver is a key component of the energy transition, used in a variety of sectors including in photovoltaic cells in solar energy and as a part of the batteries used in electric vehicles. As a result, silver demand is set to reach a record high this year, according to the Silver Institute. What Kinesis offers Kinesis offers investors the KAG silver-backed token, which blends together the traditional benefits of physical silver ownership with the modern appeal of a fully digital asset. Namely, users can make everyday payments using their silver as money with the Kinesis Virtual Card, converting metal to fiat currency in real-time, at the moment of purchase. With the card, spenders can earn a proportionate yield for choosing to pay for their goods in silver - or gold. Alternatively, holders of KAG earn a monthly return for keeping their precious metals in Kinesis' secure vaulting network, known as the Holder's yield. You can find out more about all the different usage-based yields Kinesis has to offer on its dedicated page, here. Kinesis maintains a high level of trust and security, with each KAG backed by one ounce of fine silver, stored in fully insured and audited vaults, held in the holder’s name. While there are clearly many ways to buy silver, Kinesis digitalised silver offers users all the benefits of physical metal ownership, lowering barriers to entry into precious metals, while enabling them to earn a return on their platform activity every single month. Discover Kinesis Silver KAG Learn more Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience inwriting about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewableenergy and the challenges of avoiding greenwash while investing sustainably. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis
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