In this article, two popular investment vehicles are explored: gold and stocks, with a focus on comparing the relative benefits and considerations of both. While gold is generally viewed as a lower-risk asset with the capacity to store value in the long term, stocks are often perceived as a riskier asset class due to their volatility, with the potential for granting high returns. Whether gold is a better investment than stocks or vice versa, depends on the needs of the investor. Does the investor prioritise wealth preservation? Growth? and what is the time horizon? Find out more about these investments down below. Advantages to investing in gold Gold is a good fit if your priority is to preserve the value of your wealth. Perhaps now more than ever before, people are now looking for an asset that stores the value of their wealth. Gold is unique among other asset classes, having historically served as a proven hedge against inflation. Since the abandonment of the Gold Standard in 1971, when President Nixon unpegged the quantity of dollars from gold reserves, inflation rates have been on the rise. The prospect that inflation will be a prolonged issue makes gold’s property as a hedge increasingly attractive. Gold has stood firm throughout history. Consider the Great Depression, the 2008 Financial Crisis, and the effects of the COVID-19 pandemic – during all of these events, gold prices hit record highs. Even in the midst of liquidity draining the US economy during this year’s central bank quantitative tightening policies, gold has shown remarkable resilience. Gold is attractive for investors with longer investment horizons. Being a safe haven asset doesn’t mean gold can’t generate returns; in the medium to long term, gold has tended to demonstrate a significant upside. For example, from 1990 to 2020, gold prices rose by about 360%. Advantages to investing in the stock market Investors looking for large returns may select stock investment - while taking on additional risk. Over the same period (1990 to 2020), the Dow Jones Industrial Average (DJIA), a widely-used measure of overall stock market performance, rose by 991%. While stocks are considered riskier investments than precious metals like gold, the stock market can present attractive returns if short-term gains are sought after. For example, during the Federal Reserve’s quantitative easing program following the COVID-19 pandemic, the S&P 500 doubled in the shortest time frame in history, going from 2237 to 4479 in just under one year. When investing in stocks, companies often pay out dividends. Dividends are paid out when companies channel a portion of their profits back to their investors, which can be compounded when reinvested. Dividend yields often vary depending on company profits and something to consider is that not all companies offer dividends in the first place. Nonetheless, investors may find the steady cash flows attractive. Gold vs Stocks It might be tempting to oversimplify, but the attributes of assets like gold and stocks are not dichotomous. Both the stock market and the gold space are extremely diverse. Even within each space, there are a variety of assets with different risk levels and expected returns. For instance, many see the appeal of hedge funds – where stocks are actively traded to maximise short-term gains. While others prefer to invest in index funds that track the performance of indexes, like the S&P 500. In these two examples alone, the risk and potential returns vary greatly - even within the stock market. Within the gold and precious metals space, some choose to invest in gold stocks. When investors purchase such stocks, they own some equity in a gold company; these stocks often move in tandem with the price of gold. As is the case with those who trade Gold ETFs, many attempt to reap the returns of the asset’s price fluctuations, while opening themselves to the risk of not owning the underlying physical asset. The gold-backed crypto offering of Kinesis Gold (KAU) on the other hand, combines all the benefits of precious metals ownership with steady passive income in the form of a monthly yield paid in physical gold. When investors buy physical gold through Kinesis, they buy gold that is stored in Kinesis’ secure vaulting network, which is owned in the investor’s name. Just by purchasing and holding said gold, investors can receive yield, as well as benefitting from the asset’s haven quality in a time of record high inflation rates, globally. Is gold a better investment than stocks? The decision to invest in gold or stocks ultimately depends on the priorities and risk tolerances of the individual investors. While investors with a high disposable income and a large appetite for risk, may prefer stock market investment, those seeking to minimise risk while recouping gains will likely prefer to choose gold. In either case, some level of diversification could be wise. In the words of the hedge fund manager Ray Dalio, “diversifying well is the most important thing you need to do”. A diversified and nuanced portfolio may be the linchpin for investors to achieve their goals. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
The precious metals sector has had a big run since November 3rd, with gold up 8.7%, silver up 10% and GDX up 21% (through to November 16th). The sector is due for what I believe will be a mild pullback. In fact, I would welcome a shallow pullback to consolidate the big move, reset the momentum indicators (RSI/MACD) and thereby set up the next move higher. For the better part of this year, the prices of gold and silver have been moving in correlation with the directional movement of the stock market. When the market heads lower, the hedge funds have been shorting gold and silver COMEX futures, along with SPX futures. They cover some portion of their shorts when the market bounces. This chart shows this relationship: The chart above plots the price of gold (shown by the red line) vs the S&P 500 (shown by the blue line) over the last year. The two markets were mildly inversely correlated up until mid-March (blue vertical line). After mid-March, the two markets have been moving almost in lock-step. I recall vividly thinking to myself in mid-April that the decline in the precious metals had become its most intense at any time since the precious metals sector downtrend began in August 2020. I also believe that this amplification of the selling in the sector might be the final leg to a bottom. The fact that the hedge funds were shorting COMEX gold and silver futures starting in the spring can be tied to the weekly CME Commitment of Traders ("COT") report. The Managed Money COT segment (hedge funds/CTAs) has been dumping gold and silver gross long positions and adding to gross short positions. The COT report showed that the Managed Money cohort went net short on COMEX silver futures in July and net short on COMEX gold futures in August. In the past 20 years, mostly though not in all cases, when the Managed Money COT cohort has been net short on COMEX futures, it has signalled the end of a decline in gold and silver. While the Managed Money cohort has been net short paper silver several times over the last 20 years, it is rare when the cohort is short on both gold and silver COMEX futures - like now. Circling back to the correlation between the stock market and the prices of gold and silver, the correlation illustrated in the chart above occurred in the final move to a bottom in the precious metals sector in the spring/summer of 2008. The chart below shows the gold price vs the S&P 500 from 2007 to the present on a weekly basis: This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
First and foremost, gold and silver should be viewed as wealth preservation assets rather than as "rate of return" investments. Over the decades and centuries, precious metals have proved effective as a hedge against inflation and fiat currency devaluation. In this analysis, investment in gold and silver refers to purchasing physical gold and silver in the form of sovereign-minted bullion coins, bars from reputable refiners or allocated gold and silver platforms. Gold vs silver: Price Using measures such as the ratio of the S&P 500 and the 10-year U.S. Treasury bond price against the price of gold and silver, the two investment metals are currently undervalued relative to financial assets, like stocks, bonds or real estate. However, both metals do offer the potential for wealth preservation as well as outperforming other financial assets as investments. Gold vs silver: Volatility The price of silver is more volatile than the price of gold. This is a desirable attribute during precious metal bull cycles and a potential detriment when each value is in decline. However, the gold-silver ratio can be useful as a guide when deciding to invest in one metal or the other. The chart above shows the gold-silver ratio ("GSR") since the beginning of the current precious metals secular bull market (2001). The ratio shows the amount of silver ounces required to buy one ounce of gold. When the GSR moves above the green horizontal line at 80, silver is statistically undervalued relative to gold, and thus it would be more rational to purchase silver than gold. Gold vs silver: Utility When the gold-silver ratio is at levels considerably lower than 80, the determination of which metal to purchase should be based on the relative utility of each as a core asset holding. For example, a 100 oz bar of gold "stores" a lot more wealth than its counterpart, a 1,000 oz bar of silver. On the other hand, over hundreds and thousands of years, silver has had the benefit of superior fungibility or use as an everyday currency. Both gold and silver can be viewed as the "anchor" in any investment portfolio. Again, the percentage allocation to the metals is based on personal risk and time horizon preferences. However, because gold and silver have proved to be superior wealth preservation assets over hundreds of years, they should be regarded as a core long-term holding independent of the relative volatility of each over shorter periods of time. How can you invest in gold and silver? To reap the full utility of gold and silver as asset preservation assets and portfolio investments, many choose to buy physical gold and silver in the form of bullion coins and bars or purchase physical gold and silver via platforms such as Kinesis - or, a combination of both. In terms of the physical gold and silver that I own, I have roughly a 50% allocation to each metal. This is the long-term wealth preservation portion of my portfolio that will quite possibly be passed on to my heirs. In addition, if I need to sell some, sovereign-minted coins are recognised pretty much anywhere in the world, offering better liquidation liquidity than other forms of physical gold and silver. In lieu of self-custody, precious metals investment accounts that are backed by real physical metal, such as Kinesis make it easy to invest directly in physical gold (KAU) and silver (KAG). In addition to the various account features available, services like Kinesis make it possible to trade in and out of gold and silver positions daily, which would be convenient for market timing trades. While it's ideal to invest in both metals, when silver is undervalued relative to gold per the gold-silver ratio, it makes sense to buy silver instead of gold. Both gold and silver should be considered an integral part of any investment portfolio. In addition to reducing the volatility of an investment portfolio and providing a hedge for stock, bond and real estate investments, physical gold and silver ownership provide durable and reliable wealth preservation over the course of long market cycles. 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.
What is Diwali? Diwali is known as the ‘festival of lights’ and is one of the major festivals celebrated by Hindus, Jains and Sikhs across the world. Taking place annually, the celebration lasts five days and marks the beginning of the Hindu new year. It is widespread custom to light diyas (oil lamps) on the night of the new moon to celebrate the presence of Lakshmi, the goddess of wealth. Being synonymous with prosperity and good fortune, gold has become an important part of the celebrations. In this article, we discuss the meaning of the festivities and why gold has an even shinier lustre during these sacred times. The meaning of Diwali The etymology of the word Diwali is “row of lights” in the ancient language Sanskrit. As such, many lights and oil lamps are lit on the streets to mark the occasion, with the addition of fireworks, and family feasts, where mithai (sweets) and gifts are shared. Diwali is a sacred time that acknowledges the victory of good triumphing over evil, and while it differs based on legends, Hindus celebrate the return of deities Rama and Sita, defeating the evil of Ravana. The festival is widely associated with Lakshmi, goddess of prosperity and wealth, who is often depicted in Indian art as elegantly dressed and endowed with golden robes and often seen holding a lotus. In recognition of this, the tradition of gift-giving is recognised by many who celebrate Diwali so as to bestow good fortune on loved ones. Owing to this, the exchanging of gold - and other precious metals - is extremely popular. Gold Gifts at Diwali During the first day of the celebration, known as ‘Dhanteras’, many dedicate themselves to cleaning their homes and purchasing small items of gold to bring good luck. Among those who celebrate the birth of the goddess Lakshmi, it is a day to exchange gold with friends, family and neighbours. As a result, jewellers and gold coin dealers in India frequently see a spike of up to 30% in sales leading up to the festival. In a similar trend, gold demand in the physical market sees significant growth during the festive period. Typically, buyers are seeking out bars and coins in smaller quantities that can be given as gifts. Kinesis will soon offer a new range of fine, minted bullion coins and bars at their online bullion store, in a wide array of weight options suitable for every level of investment. The importance of gold at Diwali According to mythology, King Hima’s son was destined to die after a lethal snake bite. It was his wife that changed his fate by distracting the serpent, leaving a pile of gold at the family’s door. As the story goes, the deity of Death came disguised as a snake but was blinded by the dazzling jewellery and coins. As a result, he could not enter the prince’s chambers, forcing him to leave and spare the prince’s life. This legend has inspired a tradition of buying gold on ‘Dhanteras’ to ensure good luck. While gold jewellery has traditionally been the favoured gift of Diwali, gold bullion is becoming a more popular modern alternative. Why not send gold this year? If you are celebrating Diwali this year, why not gift your family, friends, or neighbours Kinesis Gold? Kinesis Gold KAU is a digital asset, backed by one gram of fine gold, stored in fully insured and audited vaults. Within Kinesis' global vaulting network, all gold bullion is an assured minimum fineness of 9999 making superior quality precious metals accessible to all at some of the lowest costs in the industry. During Diwali, hopes of justice and prosperity take centre stage - the same principles evident in the Kinesis system. Each month, Kinesis pays users a monthly return whether they store precious metals within the network or if they use the Kinesis card to transact with precious metals, anywhere in the world. Kinesis Gold makes the perfect gift, offering all the benefits of physical metal ownership with the added earning potential of a return in physical gold each month. Find out more about Kinesis Gold Kinesis KAU 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
Gold has been mined for thousands of years with its appeal enduring through some of the earliest civilisations through to the modern day. In total around 187,200 tonnes of gold have been mined since the beginning of civilisation, according to the World Gold Council. As gold is both highly valued and relatively easy to be recycled, the bulk of the metal mined is still around in some form today, be that as part of jewellery or as gold bars in vaults around the world. In fact, if all the gold ever mined was collected in one place, it would fit into a crate of 21 meters cubed. Gold’s Journey: From the Ground to the Vault Gold has been highly sought after due to its shiny lustre and later, its role as the global trading currency, leading to hundreds of thousands of people going in search of the metal. Most famously, the California Gold Rush in 1849 saw 40,000 miners rush to the US state in search of the precious metal. Although only a few of the “49ers” ever got rich, this rush marked the start of a surge in global mining activity. While the US still possesses abundant gold reserves, it has fallen behind China, Russia and Australia on the rankings of the world’s largest producers. In total, just over 3,500 tons of gold were produced in 2021 with China the source of 332 tons, closely followed by Russia and Australia, with 331 tons and 315 tons respectively. A few decades ago, South Africa was a dominant force in gold mining but it has since fallen from the top spot of being Africa’s largest producer, losing that crown in 2018 to Ghana. As for the mines themselves, the largest is found in the US (Nevada) producing 3.3 million ounces of gold in 2021, while accounting for just under 3% of the global supply. Next was the Muruntau deposit in Uzbekistan with 3 million ounces, followed by Grasberg in Indonesia with 1.4 million ounces. In fact, the Grasberg mine has proven to be one of the most productive deposits ever found, having produced 53 million ounces of gold, as well as 33 billion pounds of copper since 1990. Global mine supply has remained fairly stable over the last few years and caters for the bulk of global demand for gold, which came in at just over 4,000 tons in 2021. The shortfall is made up by recycling. Almost half of the gold produced each year is turned into jewellery, with this sector remaining the biggest source of demand. The next largest is as an investment asset with central banks holding vast assets of gold to protect their currencies. The US holds the most gold with over 8,000 tons, the bulk of it stored at its famous Fort Knox depository, more than double the amount of Germany, the second largest holder, and the International Monetary Fund in third. Is gold a safe haven for investors? While central banks hold gold to manage their currencies, the precious metal can also play a role in diversifying individual investors’ portfolios and managing risk. Gold has been a proven store of value, with one ounce of the metal retaining similar buying power over multiple decades. As gold is not correlated to the movement of equities and other financial markets, it can be used as a hedge against downward moves on stocks and shares, earning the asset a reputation as the ultimate safe haven. Different ways you can invest in gold There are a variety of ways in which an investor can gain exposure to gold. In its simplest form, there is physical gold, with a range of investment-grade bars and coins available from mints around the world. Coming soon, Kinesis will offer a new range of minted bullion coins and bars at their online bullion store, at some of the lowest prices in the precious metals sector. The value of an ounce of physical gold is well known throughout the world with bars or coins easy to buy or sell on a highly liquid market. Another way of gaining exposure to gold is via the gold miners who are listed on stock exchanges across the world. While the fortunes of these miners are largely led by the underlying price of gold, they also typically offer significant dividends, providing shareholders with a yield. The Future of Gold Gold is likely to remain valued for many centuries, while its shiny lustre makes it highly sought after in two of the world’s most populated countries: China and India. Indeed, the trend of the last few decades has seen a shift of physical demand moving from Europe and the US to Asia with Turkey and Thailand also significant buyers. Where the shift in gold’s role is most likely to be noticed is as an investment asset. While gold has always attracted investor interest as a haven asset, its lack of yield has at times lessened its appeal. Kinesis Money has created a product that crosses this divide with its KAU coin acting as a gold-backed currency that generates a yield for its holders. This digital gold offering is an investment built for anyone seeking to protect their wealth in precious metals while using their gold as money. Each KAU is backed by one gram of fine gold stored in fully insured and audited vaults, in the buyer’s name with the coin enabling holders to spend, trade, send and earn physical gold, anywhere in the world. Want to learn more about Kinesis Gold? Kinesis KAU Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience inwriting about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewableenergy and the challenges of avoiding greenwash while investing sustainably. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis
For most of recorded history, gold has been used as money or as a method of exchanging goods and services from seller to buyer without bartering. The classic gold standard was adopted in the 1870s and involved backing paper currency with the value of the gold held by the sovereign issuers of currency. This article looks at the history of the gold price as measured in U.S. dollars going back to 1879 when the United States adopted the gold standard. Gold price explained Under a formal Gold Standard, the amount of currency issued by a country was tied to the value of the gold owned by the Government. The gold price was based on a fixed exchange rate by which paper currency was freely exchangeable for gold at that fixed rate. In 1879 the U.S. set the exchange rate for dollars at $20.67 per ounce of gold. In 1934, U.S. President, Franklin Delano Roosevelt, signed the Gold Reserve Act of 1934 which revalued the price of gold higher by 75% to $35 per ounce. This dollar devaluation against gold was an effort to jump-start the U.S. economy during the Great Depression. It was also a way to increase the value of the gold held by the U.S. Treasury. It's interesting to note, however, that the market price of gold traded in New York City had risen to over $24 per ounce or 20% above the official fixed rate of exchange before the exchange rate was reset to $35. This was likely influential in the Government's decision to revalue the gold price to prevent a massive rush to exchange dollars for gold at the banks. In 1971 the U.S. "closed the gold window," removing the world's reserve currency from the gold standard. Gold was allowed to trade free of an exchange ratio mandate. Interestingly, starting in late 1968, the market price for gold traded in New York City began to diverge from the $35 fixed exchange ratio. Between 1968 and 1971, leading up to the United States' closure of the gold window, the market price of gold rose from $35 per ounce to over $41 per ounce. What has driven changes in the price of gold? After the U.S. Government removed the dollar from its official gold backing, the market price of gold traded in New York began to rise rapidly. Between 1971 and January 1980, the price of gold ran from $35 to as high as $850. The easily observable catalyst for the move higher in gold was rampant price inflation plus economic and geopolitical instability, globally. Gold price in US Dollars - from 1971 to present The underlying cause of the price inflation was a sudden increase in the supply of dollars, as the U.S. Government took advantage of its pure fiat currency and began printing currency. Between 1971 and 1980, the M3 measure of the U.S. money supply nearly tripled. The spectacular rise in the price of gold during the 1970s was not so much an increase in the value of gold but, rather, a decrease in the value of dollars used to purchase gold. In other words, price inflation comes primarily from the devaluation of fiat currency via money printing. This is why gold is seen as an effective hedge against inflation. Since Nixon closed the gold window in 1971, the price of gold has risen from $35 to as high as $2,100 and is currently just below $1,700 versus the U.S. dollar. It has risen even more against most other major fiat currencies. Price of gold vs inflation It's worth showing the effectiveness of gold as a price hedge with a real-world example. Between 1971 and 2022, the average home price in the U.S. increased nearly 14-fold from $25,200 to $348,000. However, the price of gold increased over 51-fold. In fact, in terms of the purchasing power to buy a home, the price of gold outperformed as an inflation hedge. In 1971 it took 720 ounces of gold to buy an average home. But in 2022 it takes just 193 ounces of gold to buy the average home. Inflation is the single most important factor that drives the price of gold. But not "price inflation," per se. Rather, it's the economic definition of "inflation" as it applies to the supply of fiat currency more than wealth output. Inflation occurs when the currency supply increases at a rate above the marginal increase in wealth output. Rising prices for goods and services are evidence that the currency supply has been excessively increased relative to the supply of goods and services. This chart prepared using the St. Louis Federal Reserve FRED database illustrates this point: US Money Supply vs GDP The chart shows the US money supply measured by M2 (blue line) vs the US GDP (red line) on a year-over-year percentage basis since 1971. The yellow-shaded areas show the periods of time in which the increase in the money supply exceeds the marginal out of wealth. This is roughly 98% of the time between 1971 and now. The yellow-shaded areas represent periods in which the dollar is devalued through excess money printing. The effect of this shows up as higher prices for goods, services and, of course, gold. On a relative basis, the prices for these items are not rising, and the value of the fiat currency used to purchase these items is declining. The dollar value relative to gold has declined by 98% since 1971. The second most important factor that drives the price of gold is negative real interest rates. Real interest rates are calculated by subtracting the inflation rate from the Fed funds rate. The year-over-year inflation rate measured by the U.S. Government's CPI index is 8.7%. The Fed funds target rate is 2.75%. This means that real rates are negative by 5.25%. Throughout the fiat currency era, studies have found a strong negative correlation between real interest and the price of gold. This chart demonstrates the relationship: Real interest rates vs the gold price in $/oz The chart runs from 1973 to 2013 - the modern fiat currency era. The light purple-shaded areas show periods when real interest rates have been negative. In all three periods, the price of gold rose swiftly. With the real interest rate considerably negative in the United States and the EU, it's reasonable to expect, if not assume, that at some point in the next few months there will be an upward reset in the gold price of some not insignificant magnitude. Why should you look at historical gold prices? Gold has functioned as money throughout most of organized history. As populations became large and required more forms of organisation, currency was used as a mechanism to use gold as money fungibility. Until 1971, the price of gold was determined by the rate of exchange between an ounce of gold and the currency by which gold was measured. Since 1971, the price of gold has been set by the global trading market, notwithstanding the constant effort by western Central Banks to suppress the price of gold. At some point, the world will likely reincorporate gold into the global monetary system. When that occurs, it will require a substantial upward revaluation of the gold price, at which point the price will be based again on a fixed rate of exchange. Dave Kranzler is a hedge fund manager, precious metals analyst and author. After years of trading expertise build-up on Wall Street, Dave now co-manages a Denver-based, precious metals and mining stock investment fund. This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis. The views expressed in this article are those held by Dave Kranzler and not Kinesis.
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