Gold

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

Property, as well as the housing market more broadly, has long been considered a stable, yet lucrative investment strategy. In much the same way, gold is another traditional investment asset that can allow 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. So how do property and gold shape up as investment avenues? 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' 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 a 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 can 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, making it 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 take money out, rather than add, 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, with the introduction of digital gold. 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. 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 favour yield-bearing assets, to offset the process of currency devaluation and the 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, users took home a yield 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, could gold be an option worth considering? 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

What's The Difference Between Gold And Bullion?

Traders and experts often discuss gold and the commodities market, but the specific terms “gold” and “bullion” are actually quite different. While gold encompasses all forms of the metal and ways to trade in its market, including coins and bars, bullion includes the physical forms of other precious metals also traded, like silver and platinum. It’s important to understand these differences and the various forms gold can be invested in, so you can choose the best form for your goals and needs. The Gold Market Trading in the commodity market includes precious metals like gold, silver, and platinum. Historically, gold is valuable and has been used as currency. Its price remained relatively consistent until the 2008 financial crisis, when its price nearly doubled. In 2019 the price of gold increased by 13%, while in 2020 it went up by an incredible 26%. By contrast, 2021 wasn’t a great year for gold, due, in part, to the Federal Reserve announcing that the banks would increase interest rates sooner than expected. That caused the price of gold to decline by almost 4% in comparison to 2020. Gold price in 2021 There are many reasons to invest in gold since it is often viewed as a safe option compared with other investments. It often happens that the value of other asset classes like the FTSE 100 goes down, while the price of gold goes up. Here are some of the reasons gold is a good investment: Preservation. Gold’s long history makes it an attractive, secure form of long-term investment and wealth preservation. Its value continues to grow slowly, though it is less impacted by inflation and volatility. Hedging. Generally, gold maintains its value or prices even improve as the dollar falls. It is also not directly impacted by interest rates and is a scarce asset. This behaviour makes investing in gold a popular hedging technique, acting as insurance against economic events. Portfolio diversification. A portfolio made up of many different types of assets generally reduces risk and is stronger against volatility. Gold is often negatively correlated to the stock market, meaning that even as the stock market falls, gold may remain steady or prices may increase. Including gold can help diversify your portfolio and provide some protection against unforeseen events. Stock opportunities. Stocks in gold companies can usually maintain profitability even when the gold price is low. Many companies also pay dividends, making gold stocks a valuable buy for investors. Gold trading can take on a variety of forms: you can trade physical gold, purchase shares in gold mining companies, invest in gold ETFs, or trade in gold options and futures. Each of these methods provides different benefits and challenges and involves using different risk strategies. In this article, we’ll focus on trading in physical gold through bullion, coins, and bars. Investing in Bullion Gold bullion is physical gold that is at least 99.5% pure, in the form of bars or ingots. Investors can purchase bullion from banks or brokers online or in person, and store it themselves or with a third-party custodian. While you can buy the actual bars, investing in gold and silver bullion is easier to do via ETFs or futures contracts. It can sometimes even be considered legal tender. ETFs contain a collection of securities, which typically track an underlying index. Gold bullion ETFs track gold certificates, which can be exchanged for physical gold or the cash equivalent. While it’s not the same as owning a physical gold bar, investing in gold ETFs still grants access to the bullion market. Futures contracts are agreements to sell and deliver gold bullion to the buyer at a set date for a set price. Until this happens, the buyer only owns a paper gold contract, which can be sold before the expiry date or rolled forward into a new one. It’s worth noting that this trade is in contracts, not shares. They can be quite profitable but also lead to heavy losses if the bullion price changes unfavourably. As a result, futures trading is usually suited for experienced investors. Options contracts are similar to futures in that the buyer and seller agree on a specific price of gold at a certain date. The difference is that with options trading the buyer doesn’t have an obligation to go through with the purchase while on the futures contract the trade will be executed. Banks often hold gold bullion as reserves, which is used to settle an international debt or stimulate the economy through lending. A central bank lends gold bullion to a bank, which sells the gold or lends it to mining companies, while the central bank receives the cash equivalent. If the bank sells bullion on the spot market, it receives cash. This addition of gold in the market reduces its price, hopefully enough that the bank can buy it back at a lower price than it was originally sold for. If the bank lends the bullion to a mining company, it is usually repaid from the company’s future mining output. A mining firm would borrow the gold to finance a project or in a forward hedge contract, in which gold that has not yet been mined is pre-sold to buyers. Investing in Gold Coins Another way to invest in gold is to buy gold coins or bars; physical forms of gold that are typically more available and more manageable for everyday use. Coins, naturally, are more flexible, since you could sell a portion of your gold collection by selling some coins rather than your entire gold bar. Some coins may also have varying values if they are rare or antiques. Gold coins or bars can be purchased online or in person, too, through brokers, banks, or pawnshops, and stored independently. As the historical basis for most nations’ currency, gold coins can be safe investments and sold when the market price best suits the investor. Pros and Cons of Physical Gold Both of these methods involve owning physical gold, which has the benefit of control and the challenge of actual storage. Since investors hold the physical bar or coins, they can sell at any time the price is most attractive, and hold it when it is not. As outlined above, gold is generally considered a safe investment and a way to diversify and hedge your investment portfolio. However, it can be difficult to store bars of gold – they take up a lot of space, and could be lost or stolen. Many brokers offer insurance options for physical gold, or it can be stored at a bank. There are some websites where you can buy, sell, and store physical gold through a broker, and thus not have the responsibility of storing it yourself. Gold vs Bullion When comparing the difference between investing in gold or in bullion, it is important to consider your investment needs. While investment in bullion through ETFs, Futures or Options contracts enable you to incorporate gold into your portfolio, investors, however, do not have legal title ownership of the bullion. Instead, investors simply profit from the speculative or tracked value of gold as an asset, such as through its market price or the extent of its availability on the market. For investors looking to access the fullest extent of benefits that physical gold offers, investment in gold coins, bars or digital gold, could be considered a preferable option. In this way, investors can build their wealth, by being protected against market volatility, currency fluctuations and inflation risks, as well as being able to physically redeem their gold. Ultimately, the best investment choice will greatly depend on the investor’s goals, and the extent to which they intend to utilise their gold investment. 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

11/01/2022

A Guide to Physical Gold, Digital Gold, Gold ETFs & Gold Bonds

In this article, we will consider a number of different ways to invest in gold, helping you decide on how best to meet your investment goals. From the time of ancient civilization to the modern-day, gold has been a prized commodity. Once gold functioned largely as currency, but today, many investors buy gold as a diversifying asset, or as a hedge against economic uncertainty, political unrest and inflation. Why do investors choose gold? Nowadays, you can buy gold in many different forms. These range from physical coins and bullion to exchange-traded funds, derivatives and digital gold. Knowing which type of gold is right for your investment portfolio is key. Here are just some example of why investors might choose gold investment: Wealth Protection Gold is often the asset investors turn to when the economy or political environment turns volatile, making it a strong, defensive investment. This is because gold often has a low correlation with movements in the broader stock or bond markets, making it a good hedge and way to diversify a portfolio. Liquidity Gold is becoming a more accessible choice for the everyday investor, as options like digital gold are making the precious metal a more liquid investment option. Particularly for those just starting out in gold investment, these options with no "lock-in" terms are much more attractive than other traditional assets like bonds, where the waiting period until maturity greatly defers investor's realization of capital returns. Inflation proof Over the last 50 years, gold has proven to be a solid hedge against inflation, particularly when it is notably elevated. Furthermore, when inflation is high, gold also has significantly higher returns in comparison to other traditional investment vehicles. Growing Demand Demand for gold has also grown among investors in developed markets. This is reflected not only in holdings of physical gold bullion but in the increasing number of investors in gold ETFs. Portfolio diversification A sound investment portfolio is well-diversified, which means that the underlying assets do not all react the same way to economic and political events. The key to diversification is finding assets that are not closely correlated to one another. Gold has historically had a negative correlation to many stocks and other financial instruments, making it a good way to diversify any investment portfolio. What are the different types of gold investment? Nowadays, you can buy gold in many different forms. These range from physical coins and bullion to exchange-traded funds, derivatives and digital gold. Knowing which type of gold is right for your investment portfolio is key. Different products can be used to achieve different investment objectives. Physical gold: coins and bars Gold bullion refers to any form of pure (or nearly pure) gold that has been analysed and certified for its purity and quantity. While large bars may be impressive, their size (up to 400 troy ounces) makes them illiquid assets, and therefore costly to store. Small bars and coins have accounted for a large proportion of annual investment gold demand over the past decade. New markets, like China, have also been established, while older markets, like those in Europe, have re-emerged. If you are interested in buying physical gold, it is important to keep an eye on the spot price as an indicator for when to buy, in addition to prices from reputable dealers. Often when buying physical gold, investors must consider the insurance and storage costs of the investment. However, there are options, such as Kinesis, that have completely eliminated the need to pay for storage and insurance, making gold investment more accessible. Gold exchange traded funds (Gold ETFs) Gold exchange-traded funds enable investors to tap into precious metals investment, without owning the physical asset. Each share of these financial instruments represents a fixed amount of gold, such as one-tenth of an ounce. The funds can also be bought and sold just like stocks using a brokerage account. Gold ETFs make up a substantial proportion of global gold investments. They are backed by physical bullion and reflect the current price of gold in the market. Due to their facilitation of high liquidity, they are often the cause of great fluctuations in the gold market price, due to the ease at which investors can buy and sell. Sovereign gold bonds (SGBs) Less familiar to many investors, sovereign gold bonds are government securities denominated in grams of gold and issued by a reserve bank (such as the Reserve Bank of India) on behalf of the government. They are substitutes for holding physical gold: investors pay the issue price in cash and the bonds will be redeemed in cash on maturity. Some investors find bonds an attractive option as they offer the possibility to both enjoy capital appreciation and also earn interest every year. One drawback of investing in gold bonds is that SGBs are issued in different tranches during the financial year, meaning they are not always available to buy. Secondly, they come with specific investment terms (such as eight years), so that early sale is not possible. Digital gold Digital gold, underpinned by the technology of blockchain, has enabled gold to become not only a mechanism for investment, but also a global currency. In comparison to the other investment avenues mentioned above, digital gold may be the most accessible and user-friendly option for investors who want to utilise their gold as a fundamental utility.  With Kinesis, for example, users can buy digital gold that is fully allocated with physical gold bullion, and operate within a system where gold - and silver - can be bought, sold, and traded easily.  On top of this, system users have the ability to earn a usage-based, debt-free yield on their gold investment, whether they spend, trade, or simply hold it within the Kinesis ecosystem. Kinesis secures this yield for investors by giving a proportion of the transaction fees gathered across the entire system, back to investors each month. Which Investment? There are numerous ways to invest in gold today. If you would like to add precious metal to your investment portfolio, consider your existing assets and how gold can add value to what you already own. From there, take time to consider your specific needs and investment goals, in order to select the right type of investment for your needs, whether that be coins, bars, ETFs or digital gold. 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

30/12/2021

Is gold a good investment?

This article will explore the investment potential of gold, the types of gold investments that exist and outline how you can get started. Gold has been a sought-after commodity for centuries and is one of the main investment tools used to combat the turbulence of financial markets. Owning gold, and precious metals more widely, can offer investors the ability to reduce volatility in their portfolio and maintain their wealth in uncertain times. Why Invest in Gold? Safe haven for investors Gold is a commodity, widely favoured in times of volatility - the like that many are witnessing today. It is well-known as a safe haven for investors since the price of gold has historically maintained a positive relationship with other market influencing factors, such as inflation. In fact, as Di Martino points out, gold is the least correlated asset in existence, against inflation. Gold is a finite precious metal, the value of which has increased over time. For many, gold has acted as an insurance policy during economic crises, as the value of gold is not directly impacted by factors like interest rates or the performance on the stock market. Rather, when traditional investment assets struggle to perform, such as dividend-yielding stocks or bonds, people return to gold as a stable investment choice. Inflation hedge For many years, gold investment has offered a capacity for wealth preservation and, as mentioned, the ability to act as a hedge against inflation. Not only is gold an asset that finds strength in its appreciating value, but investors can also earn a passive, monthly yield on all gold stored within the Kinesis ecosystem. Inflation occurs when there is a reduction in the purchasing power of money (indicated by the Consumer Price Index), while simultaneously, the prices of goods and services increase in the economy. One of the most notable examples of inflation, and its devastating impact, was seen in the instance of Zimbabwe, where hyperinflation caused the annual inflation rate to reach 737% by July 2020. Investing in gold can preserve the purchasing power of one’s money, therefore making it an effective way to store and grow wealth. Portfolio diversification Keen investors know the importance of having a well-diversified investment portfolio. In brief, diversification means holding assets that are not all affected the same way by political and economic events. For many, including gold is a common diversification tool as gold is usually negatively correlated with stock market fluctuations. This means that while other assets experience volatility, holding gold can counteract a certain level of risk presented by other investments. Types of Gold Investment Gold investment comes in many forms. Depending on your specific needs as an investor, one form may be better suited for your investment strategy than another. Here we’ll cover some of the most common ways to invest in gold. Gold bullion and physical gold Buying physical gold bullion has been a popular investment in recent years. The metal can be traded in recognised formats, such as gold bars, ingots, or coins. These forms of gold can be bought from reputable dealers, banks, or brokerages, both online and offline. It is important to note that when it comes to physical gold coins or bullion, safe and secure storage is a must. This may involve paying a broker, bank, or another firm a fee. Alternatively, Kinesis offers investors the ability to store physical gold bullion, for life, and free of charge. To find out more about how to access free bullion storage, click here Shares in gold mining companies Another option for investors is investment in gold stocks, also known as gold mining shares. Gold mining shares can be a little riskier than physical gold as you are investing in a business rather than the physical metal. However, certain investors like to buy shares in gold companies as returns can be greater than physical gold. But like any share, they are prone to volatility, the price of the stock reflecting the company’s financial success and market position more than the price of gold itself. When assessing shares in gold mining companies as an investment strategy, it is important to remember that this method may not be the optimal hedge against market risk. Gold exchange traded funds (gold ETFs) Gold or Silver ETFs, or an exchange-traded fund, are trusts that own physical gold or silver and sell shares that track and reflect the price of gold or silver. Also known as the “paper markets”, investors may decide to invest in ETFs so as to avoid navigating costly storage options for their bullion. However, the main issue with ETFs is that the investors own none of the physical bullion that they are trading, in their name, and hence, can never redeem it as their own. Gold derivatives Gold derivatives are financial instruments in which prices are derived from physical gold. These derivatives include Futures and Forwards. Trading gold or other precious metal derivatives should only be undertaken by seasoned commodities traders, who have the necessary know-how and skill. Again, derivatives are a mere representation of the asset, and in no way shape or form mean that the investor owns the asset. Nowadays, it is becoming increasingly preferable to hold, and own physical assets, that possess the kind of intrinsic value that gold has displayed for thousands of years. Digital gold The innovation of blockchain and other digital technologies have created new investment options for gold, with the main one being digital gold. Through digitalisation, digital gold enables the asset to possess an added liquidity, the ease of instant buying and selling, and offers investors easy access to gold investment, without the hassle of physical storage. With Kinesis, investors can utilise the - once impractical - asset of gold, as currency in their everyday transactional life. Kinesis gold (KAU) and Kinesis silver (KAG) currencies are native to Kinesis, based 1:1 on physical gold and silver, that enable investors to spend gold and silver on their virtual debit card, all while earning a yield. Is Gold a Good Investment Now? In a time of financial uncertainty, Kinesis provides investors with the option to take advantage of precious metals, as a debt and risk-free instrument that fundamentally protects wealth. Against the volatility of high-risk investment assets, and their large scale returns, precious metals investment allows for a portion of your financial portfolio to be stored in a safe haven asset. In addition to this, gold - and silver - stored in the Kinesis ecosystem maintains, and continues to build wealth, since the monetary system instils precious metals with vital yielding potential. The Kinesis yield model supports and incentivises a return through participant usage of the monetary system. Whether minting Kinesis gold (KAU) and silver (KAG) currencies, spending, or storing precious metals in the system, Kinesis provides a cost-effective, liquid, and efficient investment option, against other traditional avenues on the market. To find out more about investing in gold, start with Kinesis here.

Doug Turner
Doug Turner

23/12/2021