Precious Metals

Stay up to date with the latest news in precious metals and find out which gold and silver-based digital currencies and stablecoins are worth investing in.

Take a deep dive into the world of physical gold and silver investing with financial market insiders and explore trading tips and saving opportunities with precious metals experts.

What is the spot gold price and how is it calculated?

Put simply, spot price gold is the live price for gold at any given moment. It is the reference price that one ounce of gold can be bought or sold for at that moment in time all over the world. As gold is one of the most actively traded commodities, the price is highly dynamic and constantly changing. What is spot gold? Spot gold is the price that can be paid for the immediate delivery of physical gold. This is the reference price used to determine gold’s price direction. Unlike most other commodities, the price of gold is driven more by sentiment than fundamental supply/demand balances. Factors that typically drive the price of gold include the prevailing risk appetite of investors, how high or low interest rates are (or are anticipated to be) and how strong or weak the US dollar is. The price of gold is typically quoted in US dollars, however, there is a live price for gold in all the world’s major currencies with the relative strength or weakness of those currencies against their peers, impacting how high or low the price of gold is in a specific currency. As such the dates of the specific record highs and lows of gold will vary from currency to currency. You can view the live price of gold on our price charts here. Given how important gold is as an asset class, the spot price of gold is viewed as a key indicator of the relative health or weakness of the global economy. This spot price is a reflection of what price gold is being exchanged for in over-the-counter (OTC) markets. If there are more buyers than sellers, then the price is likely to rise. If there are more sellers than buyers, the price is likely to fall. How is the gold future price calculated? As well as a spot, or current, price for gold, there is also an extensive futures market. Here, rather than buying or selling gold immediately, you are entering into a contract to buy or sell gold at a future date. These futures contracts, which are typically of 100 ounces each, are struck on dedicated, regulated exchanges such as CME. Just like spot gold, there is a huge amount of liquidity on futures markets with traders and investors speculating the price of gold will be in the coming months. In contrast to OTC markets, the gold owed on futures contracts isn’t typically physically delivered when the contract expires. Instead, traders will typically sell off any gold they have “bought” via the futures contract and buy back any they have “sold” meaning that at the point of expiry the amount they need to pay or be paid is just the losses of gains made in the intervening period since that contract was first struck. By removing the need to pay up or deliver the gold at the time of the contract being agreed, it enables traders to build up positions many times greater than if all trades had to be physically backed up. The potential gains are therefore much greater if the price of gold moves in the right direction over the timeframe of the contract. Equally the potential losses are much greater if the price speculation doesn’t go as anticipated. How is the gold price determined? As well as spot gold and futures prices, there is also the daily London Bullion Market Association (LBMA) gold price. This is the global benchmark price for gold physically delivered in London, with the price fixed twice a day. Originally this involved four banks meeting twice a day in a room near the Bank of England where they would have a verbal auction that would determine the price. This then evolved into an auction over the phone to now being fully electronic and administered by ICE Benchmark Association with 16 direct participants contributing to the price. These take place at 10:30am and 3pm London time with a series of 30-second auctions being conducted until a balanced price is achieved. This price is published in US dollars and converted into Sterling and Euro prices based on the foreign exchange rate at the time of the settlement.  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 in writing 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 greenwashing 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.

Rupert Rowling
Rupert Rowling

26/05/2022

What is a Silver Certificate?

A silver certificate is a paper document certifying that the holder owns the amount of silver mentioned on the certificate. This gave the owner the flexibility to use the certificate as a form of payment, without having to carry around the physical silver underpinning it.  These certificates were legal tender and were used in a similar fashion to the paper money used today. Although these certificates were issued by countries including Cuba and the Netherlands, as well as by mints and bullion producers, the most widely known and traded form of silver certificates are those issued by the United States. These look similar to today’s $1 bills. History of Silver Certificates Silver certificates date back to the 19th century and came about following two key acts in US history. The first of those was the Coinage Act of 1873 which placed the US onto the gold standard, where the amount of money in circulation was backed by the equivalent amount of gold in the US Treasury.  This act caused an uproar among silver miners as up until that point they could present their metal at the Mint and have it struck into coins. However, by shifting to a gold standard, it brought to an end the era of bimetallism, in which both gold and silver were legal tender and could be minted in unlimited quantities, with the price of silver falling dramatically as a result. A “free silver” movement was created, with its supporters known as “silverites”, which argued for the retention of silver as part of the US’ monetary standard. The Bland-Allison Act of 1878 represented a victory for the silverites as the act required the US Treasury to purchase $2 million to $4 million of silver each month from mining companies to be converted into silver coins. Silver was once again monetized. A Medium of Exchange This change in monetary policy also brought about the creation of silver certificates. These certificates made for a much easier means of exchange than having to carry around large amounts of silver. Each certificate was backed by the equivalent amount of silver held by the US Treasury and carried the words “One dollar in silver is payable to the bearer on demand”. The first series of silver certificates ran from 1878 to 1923 and were much larger than today’s paper money. These were issued in denominations of $1, $2, $5, $10, $20, $50, $100 and $1,000. In 1928, the size of the certificates was reduced and they were only printed in denominations of $1, $5 and $10 until they were discontinued in 1964. For the next few years, the certificates were still redeemable for physical silver until the 24th of June 1968 when all redemption ceased. The certificates remain legal tender today worth the value stated on them, however, the collector value outweighs the stated value. In the Netherlands, a shortage of silver for minting saw the Dutch government introduce silver certificates in 1914 and these were used until 1938. In Cuba, silver certificates were issued from 1934 to 1949. Understanding Silver Certificates Silver certificates are the forerunners to paper fiat money used today. Rather than having to carry physical silver to make payments, each certificate was backed by the equivalent money held by the issuing government or mint. This one-for-one exchange mechanism was a cornerstone of monetary policy from its origins in the late 19th century until the US stopped producing the certificates in the 1960s. While paper money is still used today, fiat currencies are not backed by an underlying commodity with central banks free to control the amount of money in circulation. Silver certificates were redeemable for silver dollars and while they haven’t been issued for almost 60 years, they remain popular with collectors for their historical significance. The Value of Silver Certificates Today Rarity and condition are the two key factors in the value of silver certificates today. The US issued certificates for over 80 years with a large variety of designs throughout those print runs. Those dating back to the first issuances from the late 1870s and 1880s are rarer and typically are the most valuable as a result. The crisper the note, the more valuable it is too; those with no blemishes or folds, in perfect mint condition, are more likely to attract the highest value. Other elements that will boost appeal among collectors are lower serial numbers or an unusual design. For example, while the certificates typically carry the image of famous US men, Martha Washington is the only woman to appear on a US silver certificate, first featuring in 1886, adding to collector value. It is worth noting that the higher denomination certificates aren’t necessarily worth more than lower denomination ones with a rare $1 certificate potentially worth more than a relatively common $10 one. At the bottom end of the scale, the certificates are worth little more than the value printed on them while a rare certificate in mint condition can be worth a few thousand dollars and occasionally even millions. 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.

Doug Turner
Doug Turner

19/05/2022

What is a Gold Certificate?

Generically, a Gold Certificate is simply a form of documentation that confers ownership rights on the holder to a specified amount of physical gold. Such an arrangement theoretically gives exposure to physical gold, without incurring the costs and drawbacks of assuming the secure physical storage of the gold themselves. As later noted, however, the rights to the gold specified on a Gold Certificate are rarely completely unqualified and separate costs are typically assumed in acquiring and transacting them. Nevertheless, Gold Certificates maintain a consistent, if niche, presence in the gold investment market today. Most of the Gold Certificates issued historically are now invalid in respect of their notional claim on the underlying gold. However, many of these might still be of interest to collectors and some hold a significant numismatic value. The products described above should not be confused with a certificate of authenticity, or assay card, that is often provided with gold bars and coins as additional proof of specification and origin. The Origin of Gold Certificates Gold certificates have a recorded history of some 400 years. In their original form, goldsmiths in both Amsterdam and London issued them as proof of ownership to customers depositing gold into their safekeeping. Thus, these certificates acted as both a specific form of a physical receipt and as a certificate of deposit. While these early certificates might have been somewhat susceptible to theft, fraud or simple maladministration, their potential as a medium of exchange was soon recognised. It was not long therefore before these ‘gold certificates’ were being used as a currency in their own right. This integration was further supported by the fact that by the 18th Century, many countries had officially adopted or operated a de facto gold standard. Under these conditions, it is perhaps not surprising that national governments would eventually take an interest in the potential of Gold Certificates. Indeed, the US Treasury in particular eventually became an avid issuer of such instruments. The 1928 Twenty Dollar Gold Certificate The US Treasury issued Gold Certificates first in 1865 and, like their forebears, were intended to be simple certificates of deposit. Each certificate gave its holder a claim on a quantity of gold equivalent to the dollar face value of the note at a fixed rate of $20.67 per troy ounce. These first US Gold Certificates soon proved popular for use in gold wholesale markets, with merchants and banks being early adopters. Between 1865 and 1934 the Treasury issued nine series of notes, most of which were in large denominations. However, there was a trend of increasing use in general commerce. 1907 saw the issue of a $10 Gold Certificate note, while in 1919 Gold Certificates were made US legal tender. The high watermark for US retail investor adoption arguably came after 1928, when the Treasury issued the first small-size Gold Certificate notes. The $20 denomination proved particularly popular as, at the time, it represented a claim on approximately one troy ounce of gold. However, the Gold Certificate market suffered an abrupt reversal in 1933 when the US, mired in the Great Depression and facing a banking crisis, was forced off the gold standard. Fearing that gold would be hoarded by the public under these circumstances, the US legislated to make private holdings of gold, or claims on gold such as Gold Certificates, illegal. Holders were forced to redeem their Certificates at face value in US dollars, rather than the dollar value of the gold, which had by 1934, risen to $35 per troy ounce. It was not until 1964 that the US ban on holding Gold Certificates was lifted. Gold Certificates Today Gold certificates can be issued against either allocated or unallocated gold. Allocated Gold Certificates are fully backed by gold inventory and certificates will specify which part of this inventory is the property of the certificate holder. The certificate issuer cannot unilaterally sell or pledge this gold, and in the event of the issuer’s bankruptcy, this gold remains the property of the certificate holder. Allocated Gold Certificates generally charge higher fees than their unallocated equivalents, much of which goes towards the storage, insurance and administration of the allocated inventory. Conversely, unallocated (or ‘pooled’) Gold Certificates are not fully backed by a specified gold inventory, but by the certificate issuer’s own gold inventory. Thus, the level of collateral backing unallocated Gold Certificates can vary greatly. Moreover, this unallocated inventory remains the property of the issuer. Unallocated Gold Certificates are generally less costly than their allocated peers, reflecting both the greater risk assumed and that the issuer is storing its own gold. In practice, the vast majority of gold certificates issued today are issued on an unallocated basis and in a dematerialised (digital) form to enhance security. Where are Gold Certificates found? Banks primarily issue Contemporary Gold Certificates in countries such as Germany, Switzerland, France, and even Vietnam. These are usually issued with a prospectus, which details the obligations of the issuer, the benefits and risks to the subscriber and any other legal considerations such as restrictions on subscriber eligibility. Pool (unallocated) programmes are also operated by investment companies in both the US and Australia, which can be accessed both directly and via brokers. Some mints also issue Gold Certificates. Historically issued Gold Certificates are collector’s items of varying rarity and value. These can be sourced through much the same routes as collectable coins, such as traditional and online brokers and dealers and private sales through online platforms and public auctions. 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.

Doug Turner
Doug Turner

06/05/2022

What is silver used for?

Silver is one of the most versatile of metals, combining the highest conductivity of heat and electricity of any element with exceptional aesthetic properties – its reflectivity and lustre make it ideal for jewellery and tableware – and outstanding antimicrobial properties. In addition, silver is an abundant element, relatively easy to extract from naturally-occurring ores; it is extremely malleable and ductile, meaning that it can be manipulated into different shapes, yet it is physically strong and has a high melting point. We can divide its common current uses into three parts: Industrial Industrial use takes up more than half of all global silver production every year, compared with just 10-15% of gold. Common industrial uses include soldering and brazing alloys, batteries, photovoltaic energy, RFID chips to track deliveries, dentistry, nuclear reactors, photography, glass coatings and LED chips. Silver is also used in the manufacture of semiconductors, smartphone touchscreens, plasma television screens, for water purification and materials preservation. In chemical processes, silver is crucial for catalysing ethylene oxide to make polyester, solvents, detergents and everyday products like antifreeze. Medical Silver biocides appear throughout the medical environment, acting against bacteria by stopping it from bonding with other chemicals while remaining harmless to animal cells. In combination with water, silver ions have a powerful antibacterial effect, so they’re found in hospital water systems, while a silver coating keeps surgeons’ operating tools safe. Silver’s antibacterial properties mean that nanoparticles are often woven into clothes, to prevent bacteria from feeding on sweat. Store of value Silver is a convenient and widely accepted store of value, traded on international markets as investment-grade silver bullion. While silver coins are no longer common currency, silver objects including tableware, jewellery, artworks and vintage coins retain strong value. Since it is a highly reflective material, silver is commonly used in mirrors and specialised glass that can react to light. Investment analysts study the potential demand for silver to determine its future value. Historical use of silver Evidence from Turkey and Greece shows that silver was first mined around 3000 BC after the Chaldean people devised a means of extracting the metal. By 600 BC the city of Athens thrived on silver from local mines in Laurium. While German mines dominated medieval Europe, Peruvian, Bolivian and Mexican mines thrived in South America. Initially used for jewellery, tableware and coinage, Ancient Phoenicians (in modern-day Lebanon and Israel) understood that silver-coated bottles kept their water fresh; in the 19th century, doctors used silver nitrate in antibacterial dressings and to cure ulcers. With the invention of photography in the mid-19th century, a huge new market for silver emerged. Its sensitivity to light made silver an ideal material for the art form, particularly silver bromide and silver nitrate. By the end of the 20th century, photography represented the most common destination for global silver production, employing a quarter of it. Yet as digital photography displaced analogue, this slipped to just 9 per cent by 2013. Instead, demand for silver for photovoltaic cells rose sharply in the early 21st century, with the sector using 19 million ounces each year by 2008. Although innovation has reduced the percentage of silver in photovoltaic cells, the rise of high-tech batteries, used in electric vehicles and consumer electronics, has kept demand high. As an investment, silver is a cyclical material: when equity markets perform poorly and economic conditions unstable, investors seek sanctuary in raw materials and precious metals, which act as a hedge against inflation. Materials overview Silver is found ‘uncombined’, in ores including argentite and chlorargyrite (also known as horn silver). More often, it occurs in combination with lead-zinc, copper, gold and copper-nickel ores, from which it is extracted as a by-product. Each year around 20,000 tonnes of silver is produced. Silver is the most commonly occurring of the noble metals (meaning that it resists corrosion and oxidisation) and makes up 0.07 parts per million of the earth’s crust, compared with 0.01 for gold. Silver’s material properties include its unsurpassed conductivity of heat and electricity, its malleability, its sensitivity to light, its antibacterial qualities and its high reflectivity. Future of silver Exponentially increasing demand for photovoltaic cells, electric vehicles and supercapacitors, using nano silver conductive inks, means that demand for silver is likely to rise in the coming years. Batteries using silver oxide or silver zinc alloys perform well at high temperatures, making them ideal for aerospace and defence applications. Renewed interest in nuclear energy, in response to security concerns over oil and gas, may also feed into higher demand, since silver is a key component in control rods in nuclear reactors. Investment analysts argue that silver is currently under-priced, and with global economies still under pressure following the Covid-19 pandemic and geopolitical friction, its value is likely to rise. Innovative fabrics and clothing are also likely to incorporate silver, thanks to its antibacterial properties and malleability. Silver’s price typically shadows that of gold, after a short delay. For example, gold rose sharply in early 2022 – up 18 per cent in the first three months – and silver is expected to follow. More on the future of silver in our Gold and Silver Outlook for 2022 Learn More 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.

Doug Turner
Doug Turner

24/03/2022

Property versus Gold – Is it time to Rethink your Investment?

Property, as well as the housing market more broadly, has long been a stable, yet lucrative investment strategy. In much the same way, gold is another traditional investment asset that allows for wealth protection, creation, and security within high inflationary environments. However, these two investment avenues have undergone some readjustment, with the dream of homeownership seeming increasingly less attainable for younger generations. In the US, a report by Urban Institute found that those aged 18-24 were spending almost a third of their income on rent, while median house prices soared in 2021. This is not just an example, but a signifier of a much broader shift currently playing out in the property market. In the first part of 2021, 15% of US homes were purchased by corporate investors - rather than families or individuals - leaving the average American citizen with less than a fractional chance of winning a home over an investment firm, like BlackRock. This article will compare the path of gold and property investment respectively, to uncover which asset will sustain your portfolio through the best and the worst of (economic) times. Here, we’ll ask the question: is it time to rethink your investment? Property - The Changing Landscape Both property and gold have been termed as “safe-haven” investments, but with the ever-changing nature of the financial market, it is important to reassess this term. Haven investments have the capacity to maintain or even increase in value during times of economic downturn. They are deemed to be safe, precisely because their valuation trajectory is not necessarily correlated with ongoing stock market activity or the development of certain geopolitical events. While there is yet to be an investment entirely free of risk, the key is ensuring sufficient stability while also taking advantage of growth over time. In the case of property, the financial crash of 2007-8 was enough to remind investors that even property, previously thought to be the safe-haven asset, can come under fire in certain, extreme market conditions. With the economic crash still in people’s recent memory, the Evergrande situation in China now threatens to create a domino effect similar to the repercussions seen after the ‘08 crash, or ones of an even higher magnitude. Evergrande Troubles With the property giant, Evergrande, now on the edge of default, the housing bubble in China continues to present a dilemma for property investors in the country. Property overvaluation in Hong Kong, for example, has surged to at least 46 times an individual’s average income. This gross overvaluation of property is not only an issue for the country’s domestic housing market, but also for overall GDP growth, and the global economy as a whole. As for the situation in the UK, the housing dilemma is apparent, but for altogether different reasons. Some property experts have, notably, described the government’s net-zero strategy to decarbonise all sectors of the economy as a ticking time bomb. In all likelihood, property investment is soon to be hit by demands for clean technologies, in a move away from fossil fuel heating systems. To meet the climate pledge, property investors are likely to see increased expenses of around £4,487 for a house and £2,256 for a flat, according to the Ministry for Housing, as the new green standard for homes is written into legislation. With increased barriers for developers and uncertainty around how the government plans to overcome this, property investors may need to begin considering other options for safeguarding their capital. The Case for Gold As for gold, the metal recently saw a remarkable 3-month-high, a significant win for the asset that has historically proven to be a safe haven for investors during times of heightened market turmoil. Speaking of all-time highs, gold recorded its highest price to date just recently in 2020, when the metal hit $2,067 per ounce on August 7. As geopolitical tensions and US inflation data are priced in, gold continues to push forward after a long stretch of quantitative easing policies seen during the pandemic. Annual Percentage Change over 20 Years - Gold up 10.3% - Sourced from World Gold Council It seems that long after US former President Nixon saw an end to the gold standard in 1973, and gold was no longer pegged to the value of the dollar, the precious metal still presents investors with the key traits of a safe haven asset. In the '70s however, investors were barred from trading in their fiat dollars for gold, making the precious metal less accessible to everyday citizens at the time. Following this pivotal move, gold has increased in value by over 500% in the years since the gold standard was abolished, with central banks making sure that their reserves remain abundant. But it is only now that gold has been digitalised, that it has become infinitely more accessible to the everyday investor, making it even easier to buy gold in fractional amounts, trade it, and spend it, just like any other currency. So, let’s compare property and gold in greater detail: Wealth Protection - Is it inflation proof? In October 2021, the official annual inflation rate in the US was released, with the figure at 6.2%. More recently, inflation has now reached 7%, for the first since 1982, which marks the highest level of inflation seen in the US for almost 40 years. With inflation no longer “transitory” as was previously declared by the central bank, but sustaining its remarkably high rate, investors are responding by seeking investment assets that store wealth and hedge against its damaging effects. Danielle Di Martino notes that gold, historically, is the least correlated asset class in existence with inflation. More than simply offsetting its effects, gold has maintained a positive correlation with rising inflation rates, and achieved an average yearly performance of +10.6%, over the last 50 years. Gold has performed well in times of high volatility, in bear markets, and even outperformed the stock markets at times. Similarly, rental property can also act as an effective inflation hedge in some respects. Property investors can generate a positive cash flow, most evidently, through letting out the property to tenants and earning on the rental income each month. Homeowners can adjust their rental income to overcome inflation rate spikes, however, this method can entail extensive negotiations with tenants. There is also the chance that inflation rates will rise faster than the rent can be reasonably increased. In the medium-to-long term property or real estate investment is widely considered safe. However, this is mostly dependent on the local and global market conditions, with long term investment in real estate offering an average appreciation of about 3.8% in the last 25 years. As mentioned, property is often deemed safe but carries the very tangible human risk of handling tenants, making it a highly involved investment at times. There are, however, more passive investments that can also present competitive returns. Asset Valuation & Ownership When investing in either property or gold investment, it is not financially feasible to simply "break even". To ensure the investment is worthwhile, the outcome should be a sustained positive cash flow for the investor. Essentially, the cost of owning or controlling the asset, must not be higher than the financial output. With property investment, for instance, there are high gains to be made. However, in order to fully realise these capital gains, the property must be sold. Notably, in December 2021, UK housing prices were on the up, with the average UK asking price for property standing at £340,167 - representing a 6.3% (YTD) increase over the past 12 months. However, as existing homeowners will note, the sale-minus-buy price does not account for the numerous unrecoverable costs consistent with property investing: estate agent fees, mortgage, valuation, stamp duty, as well as maintenance costs for the property. Even for savvy investors, property investment can represent a double sting, with the potential to become a liability taking money out, rather than adding, to your pocket. In some ways, gold historically featured similar attributes of costly fees for storage and insurance, with the addition of being cumbersome and impractical for daily monetary use - despite its capacity to store value. However, investment in gold has recently become more accessible to the everyday investor, opened up by the introduction of digital gold. What’s more, companies such as Kinesis now offer investors the ability to store their physical gold, free of charge, in their global vaulting network. Investors have the ability to secure legal title ownership of physically allocated gold, as well as spend it like any other global currency. Yielding Potential Another aspect to consider in both property and gold investment is the yield-bearing potential of these assets. In the case of property or real estate more specifically, the yield-bearing benefit is found by calculating the projected annual return for the property, as outlined below. Rental yield = Annual rental income / Property value x 100 So, if the annual rental income is £14,400, with the property valued at £400,000 on the market, the rental yield for this property would rest at 3.6%. With the national average rental yield in the UK currently at 3.63%, anything over this amount is considered to be high. While this yield is competitive, as mentioned earlier, the annual rental income must be adjusted year on year to account for fluctuations in pricing within the housing market, in addition to maintaining a continual balancing act with inflation levels. Overall, while the yield on the property itself may be passive, this investment strategy is certainly not, requiring a high level of maintenance and attention on the part of the investor.   Is it time to rethink your investment? It is becoming harder to find growth in the economic environment, as well as protection and liquidity. Clem Chambers comments that this is the real danger of inflation, making economies less stable and more fragile to economic shocks. In times of high inflation, investors will generally look into buying yield-bearing assets, to offset the process of currency devaluation and rising prices of goods and services. Gold, which has been discussed at length, did not previously offer investors a yield, so many neglected to consider its stabilising effect on a portfolio, despite its historical appreciation and positive performance in inflationary environments. Only more recently, since its digitalisation, are investors now considering gold once again, with companies such as Kinesis allowing investors, for the first time in industry history, to earn a usage-based yield on their gold bullion. Paying no extra charge on storing their precious metals, insurance costs or account fees, investors took home a positive return on their gold investment, in addition to the asset’s significant appreciation over the past year. So, with the impending economic repercussions of the pandemic now just coming to light, gold is certainly an option worth considering for investors. Thinking about gold investment? Learn More 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.

Latifa Alkhanjary
Latifa Alkhanjary

10/03/2022

The Difference Between Investing in Gold and Bitcoin

Bitcoin has often been described as “digital gold” and is supposedly more popular with today’s younger generation than gold itself. So, what needs to be considered when asking the question: what’s the difference between investing in gold or Bitcoin? Bitcoin - Volatility, Returns & Value Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer network without the need for intermediaries. Bitcoin is perhaps one of the most widely recognised cryptocurrencies or digital currencies that exist today. Its volatility, extreme at times, has been astonishing. At the beginning of 2021 Bitcoin was valued at about $31,000, reaching a peak of just over $63,000 in April, then plunging to $30,000 in July and rallying to an all-time high of almost $68,000 in November of last year. In January 2022, it then plunged to a low of $35,000 and is currently trading at about $44,000. Bitcoin outpaced gold substantially in 2021, with the digital coin up nearly 55% and gold down by about 4%. Cryptocurrencies such as Bitcoin have gained traction in finance worldwide thanks to dissent, greed, idealism, and fear of missing out. Fidelity, one of the world’s biggest asset managers, has even launched a Bitcoin exchange-traded fund (ETF), while other institutions including investment banks and hedge funds are now more interested in trading the coins and buying them for their clients. Proponents of Bitcoin argue that it is a store of value and a safe haven asset. Bitcoin is a very high-risk investment with no guaranteed return because it's a volatile asset. That means that the value of Bitcoin may rise or fall dramatically over a very short period - even as quickly as a few hours or days. Bitcoin is 12 times more volatile than the S&P 500 index and more volatile than gold. And as with all cryptocurrencies, Bitcoin has no intrinsic value. Gold - an emotional, cultural & economic investment According to the World Gold Council, gold has emotional, cultural, and financial value with people across the globe buying gold for vastly different reasons. Purchasing of the asset is often influenced by a range of national socio-cultural factors, local market conditions and wider macro-economic drivers. The diverse uses of gold, whether in jewellery, technology or by central banks and investors, mean those different sectors of the gold market rise to prominence at different points in the global economic cycle. This diversity of demand and the self-balancing nature of the gold market underpin gold’s robust qualities as an investment asset. Investing in Digital Currency When opting for a safe-haven investment, Bitcoin or cryptocurrencies, more broadly, are certainly not the first avenue that comes to mind. Bitcoin’s sharp drop in value on various occasions in 2021 is a perfect example of the risks associated with crypto investing. Cryptocurrency is still an extremely volatile investment, prone to big swings in short timeframes. As with any new investment, it’s important to do your research, and understand all of the risks. It would be prudent to follow the 5% rule - that is, to not contribute more than 5% of your portfolio to risky assets like crypto. A digital currency behaves exactly like any riskier asset and performance is tied to risk appetite in financial markets. The value of a digital currency fluctuates according to risk-off/risk-on episodes as well as the overall sentiment in the financial markets. Bitcoin has proven to be highly correlated with stock markets over the last 12 months. A report from the Financial Stability Board - set up by the G-20 in the wake of the financial crisis - warned that digital assets could soon threaten global financial stability. The report highlighted the scale of the asset class and their increasing interconnectedness with traditional finance and their structural vulnerabilities. What is the digital currency market? Bitcoin continues to lead the pack of cryptocurrencies in terms of market capitalization, user base, and popularity. Beyond that, the field of cryptocurrencies has expanded dramatically since Bitcoin was launched over a decade ago, and the next great digital token could be released tomorrow. The crypto universe was valued at some $2.4tn in October 2021, a market value three and a half times what it was at the start of the year. That compares with the UK GDP of $2.7tn. Gold vs Bitcoin Which one is a better investment depends on your risk tolerance, investing goals, strategy, and how much capital you can handle losing. Consider buying Bitcoin if you want to speculate and join in the fervour for cryptocurrencies. Bitcoin is young and unproven as an investment whereas gold has dominated the economies and markets for thousands of years as a means of exchange and holding wealth. Gold has been an asset that holds value over long periods and is used to hedge against market downturns. In a cycle of low and negative real interest rates and a hedge against economic, macro, and geopolitical uncertainty, gold is unrivalled as an asset indispensable in portfolio diversification and wealth preservation. Gold has made a positive start to the year, outperforming bonds and equities as skittish investors scour the market for safe places to park cash. Fuelled by Russia-Ukraine tensions, concern that higher US rates could slow growth (recession fears), and the potential for an inflation-induced monetary policy error, gold has regained its lustre. The relationship between gold and inflation-adjusted “real” interest rates was starting to weaken amid concerns about the economic outlook and rising prices. Typically, real rates are negatively correlated with gold. This is because higher interest rates make non-interest-bearing assets such as gold less attractive. But that has not been the case this year. As real rates have increased, the gold price has remained resilient. Thinking of gold investment? Learn More 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.

Doug Turner
Doug Turner

03/03/2022