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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

Is gold a good investment in the long term?

Gold has historically symbolised prestige and luxury, with ownership of the asset conveying status and wealth. It still holds cultural significance today in many countries, largely India and China, where it is gifted by families at times of betrothal, marriage and birth. To this day, gold remains a go-to asset in times of uncertainty. Gold Performance Against the Stock Market These connotations are not unfounded. Looking back just over the past ten years it’s evident that as a fundamental investment vehicle, it still holds weight. Clearly, gold price peaks and troughs are more pronounced than in the 1960s when it was priced in two-digit figures. Gold averaged $1,858 per ounce on February 13 this year, having bucked the trend of the US dollar currency’s strength, from a low in the past 10 years of $1,049 per ounce in November 2015, according to the World Gold Council. Yet, despite the peaks and troughs, gold is still a relatively safe investment hedge against inflation, with an overall balanced portfolio of stocks, to weather the storms of undulating stock market indices’ movements. Gold Outlook Over the Next 10 Years A Hedge Against Uncertainty Surely, few could have predicted the uncertainty surrounding the Covid-19 pandemic, which only began to ease in the first quarter of 2021, would see gold demand recover from the past two years to reach 4,021 tonnes - excluding over-the-counter (OTC) markets - according to the World Gold Council. In the next 10 years uncertainty is likely to remain a hallmark and hence gold will likely continue to be a good investment when people and governments fear the worst, but always as part of a wider portfolio. Higher gold prices may be prompted by fears of further pandemics in the future. Indeed, the Omicron and sub-variant BA.2 add another element of worry with consumers buying again to hedge against the unforeseen, with new variants being investigated all the time. Macroeconomic Pressures Furthermore, the gold price may be influenced by inflationary pressures, economic recessions, or stock market dives, all presenting further upside risks in the next decade. Nations at war may further derail economies and fuel gold price projections up again. Long-term geopolitical issues will also determine economic sentiment and influence consumers’ decisions on whether to keep private assets or hold - this is yet unclear. The current Russia-Ukraine standoff and the implications of China’s position is a case in point. For private wealth, the alternatives are for assets to be locked away in bank vaults, in safes at home or kept in the investment sector in gold-backed exchange-traded funds (ETFs). An alternative, which offers an attractive interactive element to buying physical gold, is in its digitalisation into blockchain as cryptocurrencies, such as the precious-metals backed currencies offered by Kinesis. This can be a transparent, proven record to potentially hedge the price of gold against any future variants. Future Demand In terms of the demand for gold, there will likely be an increased industrial requirement in the coming 10 years in order to serve smart city infrastructure, aerospace applications such as satellite technology, and medicine. Demand from the electronics sector bounced back in 2021 by 9% year-on-year to 220 tonnes. More advanced electronic devices and electric vehicles are gaining traction, and the consequent expansion of 5G infrastructure and automation devices will be a theme going forward spurring gold demand. Is gold still a good investment? So, where does that leave investors now who are projecting for the next 10 years? And is gold a good investment in the long term? Gold can be kept as insurance for times of trouble in its physical form of either gold coins or bullion. This will remain a hedge for the occurrence of need when the pot of gold might have to be used or later replenished in times of abundance. This is unlikely to change due to the cultural basis of its accumulation by consumers in the retail sector. Recent renewed interest from central banks saw purchases rise by 82% in 2021 to 463 tonnes, lifting global reserves to 35,600 tonnes - a near 30-year high, according to the IMF. India added 77 tonnes to its gold reserve in 2021, the biggest increase since 2009 at 200 tonnes from the IMF. Notably, Thailand, Hungary, Uzbekistan, and Kazakhstan also significantly increased their gold reserves. Jewellery fabrication was a testament to consumer sentiment when demand boomed in 2021 after Covid, when demand grew by 67% year-on-year to 2,221 tonnes, according to the World Gold Council. This was the highest rise seen since 2018, satisfying the global need for jewellery, with demand in India and China largely fuelling this demand in the fourth quarter. Clearly gold remains important, both culturally, or as a hedge against uncertainty, despite the current economic recovery and steady price lifts. History suggests that gold will remain a reliable safe-haven asset in 2022. But how it is held, whether as physical, paper or digital currency, may see some radical changes going forward in the next 10 years. 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

24/02/2022

Does Ethical Investing Really Work?

It’s a loaded question, but it’s worth asking: how effective is ethical investing in tackling environmental and social concerns? Ethical investing can be thought of as industry-speak for the concept of “putting your money where your mouth is”. As we might use public transport, reduce water consumption or choose to take fewer flights, investors want to be sure that ethical investing has a significant real-world impact before embarking on the task of reevaluating their entire portfolio. This article will take an empirical standpoint, asking the question: does ethical investing really work? What is ethical investing? Ethical investing is a strategy in which an investor chooses to invest in companies that meet a certain moral standard. Every time you direct capital towards certain companies or industries, even certain everyday products, you are indirectly casting a vote with your capital. This is why ethical investing is typically centralised in areas like clean energy, sustainable products, and socially positive services. It’s a growing movement, with proponents claiming that ethical investing can also produce positive economic performance. In other words, it seems that you can do good, and make money. Ethical, sustainable & socially responsible investing There are multiple terms generally used for this type of ethics-based investing: sustainable investing, impact investing, socially responsible investing, and ESG investing. These terms generally refer to the same principle of investing your money in companies and industries for positive change. Where they differ is in the approach that investors take to reach that goal. Some portfolios may only include positive-impact investments, while others may exclude overtly negative-impact funds like firearms and tobacco. Most ethical investing uses Environmental, Social, and Governance (ESG) investing factors to judge specific investments: environmental, social, and corporate governance; a high ESG score represents a company’s long-term exposure to environmental, social, and governance risks. For example, if you want to focus on social justice, you may look for investments with a high ESG score in the social category. For a strong environmental focus, you may include companies with a high score in the environmental category. Sustainable Investing Sustainable investing is another branch of ethics-based investing. It is the practice of investing in companies that seek to combat environmental harm and climate change while promoting corporate responsibility. Socially responsible investing (SRI), for example, is a strategy that aims to promote social change and provide financial returns. This approach to business, however, has received criticism in the past through the argument that businesses should not have a social conscience. Developing on Friedman’s stance, some analysts believe that social responsibility undermines the point of business: profit over all else. So, it is important to ask the question: Is it possible to make money investing ethically? The ESG market is fairly new, but growing rapidly. In just the first three months of 2020, more than 70 new ethical funds were launched. In that time, around £27bn was invested into ethical funds while £133bn was withdrawn from other European funds. Now, there are over 2,500 ethical funds on the market.  This growth is spurred not only by public interest but also by the positive performance of ethical funds. The traditional thought that ethical investing is good for the soul but not beneficial for the wallet, has been overturned by the recent performance of ethical funds. 66% of sustainable funds finished 2019 with returns in the top half of Morningstar categories, outperforming many traditional funds and boosting confidence in this type of investing. In the first quarter of 2020, when the COVID-19 pandemic first struck and caused a downturn in the market, 24 out of 26 ESG index funds outperformed comparable conventional funds. This evidence suggests that ethical funds may offer lower levels of risk, even in such volatile markets, making them even more attractive. In addition to this, there is an increasing belief in the longevity of companies with high ESG scores. What’s more, companies thinking about their social and environmental impact may be less prone to scandal or corruption, which can result in a longer lifespan and material reward. After the tumultuous events of 2020, more public attention is certainly on the topic of social responsibility. As younger generations become more prominent and involved in their own investment decisions, companies with a strong social base may reap the benefits. Issues in ethical investing With its popularity comes some confusion and obstacles in ethical investing. Some issues within the ethical investment space are: Industry label confusion A survey by Which? News revealed that the ESG investing industry uses labels that most investors don’t truly understand. You already know the definitions of ethical, sustainable, and socially responsible investing and how much they overlap. Here are even more labels frequenting the industry: Currently, there is no regulation on using these labels, so they can vary by a fund manager and allow for a wealth of approaches. By its very nature, ethical investing is subjective, so labels and funds vary by each investor. For example, take the automobile industry. You could argue that this is a negative-impact industry since most cars run on fossil fuels and contribute to pollution. However, some companies, like Tesla, are famous for their electric vehicles and thus could be considered ethical investments. Take Audi, which manufactures both electric and gas-powered cars. You could argue that Audi should be included in a light green investing portfolio for its electric vehicles or excluded from a traditional ethical portfolio for its gas-powered cars. Unreliable data The vagueness of data also makes for difficulty in truly understanding the market’s performance, since these interchanging labels and standards can lead to varying research. Furthermore, companies’ activities cannot always be proven, and often, it may take months or even years for ethical or sustainable behaviour to be proven. While it is well-known that industries like clean energy are growing and carry great importance, they are still relatively young. Their fullest potential is yet to be realised and it is therefore difficult to estimate their future performance accurately. Greenwashing A common issue in ESG investing is companies 'greenwashing’: misrepresenting an investment to appear more sustainable than it is. Think of eggs labelled “farm fresh”, gas companies called “environmentally-conscious”, and so on, when those claims are exaggerated or cannot be strictly proven. As the market realised that the public was becoming increasingly socially conscious, the “green” label suddenly appeared on everything. Critics have called sustainable investing a marketing ploy or scam for this exact reason, noting that companies are merely trying to capitalise on the trend. Greenwashing can cause companies to be incorrectly included in ESG funds and contribute to the problem of unreliable industry data. However, some believe that any commitment toward sustainability is better than nothing. Ultimately, it’s up to the investor to decide whether this is the case. Some might agree and choose to reward the oil company that at least proposes a 20-year goal to become environmentally conscious over the companies that make no such promises. Others might claim that that isn’t enough and only invest in companies with viable actions and products. In-depth research is the key to reducing the harmful effects of greenwashing; often, with a bit of digging, investors can make more informed decisions about whether their investments truly fit their ethical standards. Many parties have also called for more explicit guidelines and standardisation around ESG scoring and investing, such as the Biden Administration and The Climate Group. Positives of ethical investing The growing trend of ethical investing has already begun to show its potential as more companies make sustainability commitments or enact new protocols to uphold social values. By engaging in ethical investing, you can access the benefits listed below: Returns on investment As we’ve explored, there is data to back the claims that ethical funds can yield returns. Particularly since the beginning of 2020, some funds demonstrate their ability to withstand market volatility and perform well against their traditional peers. The number of ethical funds available to invest in has grown, as has the value of the industry, and some ethical indices have grown faster than the FTSE 100 over the last decade. UK sustainable index outperforming FTSE 100 Growing popularity Powered mainly by the ethical lapses revealed in the COVID-19 pandemic and the growing economic power of the next generation, the popularity of ESG investing is growing. As a more significant portion of the public becomes interested in supporting companies with social and sustainable benefits, pressure on investment managers and corporations builds. This also paves the way for more formal guidance on ethical investing, such as calls for standardised ESG scoring, government involvement in regulating claims, and more independent research around ethical claims being conducted. Building the future In some circumstances, impact investing can be quite powerful with enough people and capital behind it. However, there is still scepticism that unless this is the case, ethical investing may be more of a symbolic act rather than a world-changing one. In-depth reports have highlighted that access to capital is a much bigger deal in smaller markets with fewer investors and perhaps smaller companies. In these environments, investors may have more power to influence change. Still, we cannot assume that ethical investing is automatically worthwhile or promise that every fund will bring record-breaking returns. Even in traditional investing, the direction of the future is not guaranteed. While not every impact investment is likely to yield dramatic results, many analysts are optimistic that, if done right, it can be powerful. 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

15/02/2022