Why Investing in Gold is crucial?

Within the current economic climate – people often wonder why they should invest in gold. It’s simple – no one knows what’s around the corner. Gold is used as a hedge against all things uncertain. Investing in gold is often referred to as an insurance policy or a means of protection against the unforeseen.

Now’s the time….

This could be anything from; uncertainty within financial markets, political ambiguity or foreign policy influencing war and/or terror. If you believe that none of the above is occurring today or will continue in the future, then gold is not for you. Historically – these problems have affected society since anyone can remember. Even when it may seem (or we are led to believe) that the economy is improving – there’s always a problem around the corner. The price of gold fell more than 30% since 2011. Central banks in China, India and Brazil have used the fall in price as a significant buying opportunity in order to take out cheap insurance against unforeseen events. Applying the rhetoric, “Buy low, sell high” – the smart money is certainly taking advantage of the gold price.

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Money & wealth – two different things

There are so many compelling reasons that influence the market to take cover. It’s now common knowledge that the U.K has the largest national debt in the world. So, whether or not the UK’s economy may be improving in certain areas – we are running our debt further and further into the ground. This sort of behaviour results in bailouts. Unfortunately – there really isn’t much money to go around. Much of it has been used on the rest of Europe with many more states knocking on the International Momentary Fund’s door (IMF). Cyprus struggled to get further bail-out funding from the IMF so instead helped themselves to people’s hard-earned money. Most of the banks that we trust to look after our money are all exposed to this house of cards phenomenon. All it takes is one card; one Lehman and the rest of us fall…

Money and wealth are very different it would seem!

Market downturn

2019 has continued to experience struggling trading conditions in the UK. Brexit uncertainty has combined with increasingly shrinking corporate profits to create growing job casualties.

Firms large and small have gone into bankruptcy as they struggle to survive in today’s digital age. Jamie Oliver’s restaurants and British Steel have perished while Ford has announced the closure of its UK plants, with thousands of jobs to be cut.

House prices have fallen, and high street spend shrunk as interest rates move up from record lows. With the digital age upon us, online mega-firms such as Amazon will continue to strangulate the high street. Their low prices, free delivery and increased automation will further impact job prospects in the UK and globally.

We will likely have to adapt to such changes as the digital market’s rise will only continue. That may mean 4-day working weeks or similar adaptions, but either way, gold is set to thrive with the growing fear factor.

Brexit and political uncertainty

In mid-2019 we find ourselves no further along the Brexit path than we were the previous year. A failure to deliver Brexit on time has led to an extension of deadlines and ultimately the demise of the UK Prime Minister. At no point in Britain’s history has the nation and politicians been so divided.

Now in the process of electing a new Prime Minister, the UK’s indecision and division have created a devaluation in Sterling. With no solution in sight, this provides fertile ground for gold to flourish. The general public, frightened by what has unfolded before them, are now turning to the security of physical gold in their droves.

The Trump Factor

With gold so closely linked to the performance of the US Dollar, President Trump’s actions and words can provide a major influence on gold’s value. While US stock markets have flourished in 2017 and 18 from Trump’s tax cuts, his decision to impose punitive tariffs on China and Mexican trade has spooked the markets.

His single-minded approach is proving to be a catalyst for the gold price as market analysts react to the potential consequences of such sanctions.

Paper money is becoming worthless

The printing of money both abroad and in the UK is reducing the strength of a currency. It’s not that the price of gold has doubled over the last 5 years, it’s that it now takes twice the amount of currency to buy an ounce of gold. This principle goes back all the way to the 1920s where an ounce of gold was $20. Today $20 can’t buy you much but an ounce of gold is worth just over £830. Can see how the value of paper money has disintegrated over time?

Rates on savings accounts are currently laughable. I think the highest I could get recently was 1.25% on NS&I. Inflation sits at over 2% so whichever way you work it out – you lose money by leaving your money in the bank.

The mere fact that you have money in your bank account or in an ISA means that you earn less than inflation and that your wealth is decomposing. So, the opportunity cost of investing in gold is low.

Cryptocurrencies and gold

The rise of cryptocurrencies provided investors with an avenue to get quick returns within a short time span. However, going by the performance of Bitcoin and other cryptos in the last couple of months, it would appear that cryptocurrencies are entering a bearish phase.

Unacceptance of cryptocurrencies as legal tender and the crackdown on exchanges in many countries has been bad news overall for investors of Bitcoin and the like. Add the falling US Dollar and Brexit woes to this mix and you have several compelling reasons why investors should turn to gold. Within the last month and a half, gold has risen by more than 10%. Overall, many analysts have predicted that 2019 is likely to be a positive year for gold.

War and Terror

Sometimes there is no formula to war; they just happen, and they can happen out of no-where. Let’s face it – Syria has been mistreating their people for decades and now the U.S is on the brink of intervening because chemical warfare was used instead of bullets. Yes – the Russians averted a last-minute intervention by brokering a deal, but many are of the opinion that this is a short-term solution to a long-term problem. Gold jumped by 6% when it was announced that the U.S was going into Syria. Unfortunately, there are many countries that are the same or worse – which means prospects for conflict will, unfortunately, always remain high. Conflict within the Middle East including Iran is rife with many in the region stocking up on cheap gold as the only measure of financial protection.

Political tensions in the Middle East

In 2017 we saw gold jump to a high price in two months as the conflict between Israel and the Hezbollah escalated. Tensions in the region caused crude oil to jump above $76 a barrel, causing investors to start buying gold to hedge against global uncertainty and inflation.

Infact, historically we have seen that any event that brings international oil prices under pressure, automatically turns positive for gold.

What’s the story now?

In 2019, there is no expectation of improvement in the political situation in the Middle East. There is little hope for a political resolution to the Syrian conflict, as the weakened Syrian government forces have been drawn into a stalemate in their power struggle against opposition forces, who refuse to concede their hard-fought autonomous positions.

Meanwhile, the IS Caliphate has lost 40% of their control over Iraqi territories and 70% in Syria during 2017. With the Caliphate reeling under the threat of oblivion, the risk of insurgents continuing terrorist activities globally as a backlash has gone up. Iraq has become another Afghanistan and 2018 predictions believe that continued insurgency against the government is likely to continue, as a significant number of IS fighters are in Iraq.

Yet another concern is the declining relationship between the Saudis and Iran. Of course, the Trump regime along with its western allies support the Saudis, who believe that a principal factor in the war in Yemen is Iranian support for the Houthi rebels. Needless to say, all of this does not bode well for Iran’s relationship with the west. With the proxy war in the Middle East reaching stalemate on two fronts, there is little expectation for a quick political solution in the Middle East in 2019 and this is likely to put continued pressure on global oil prices and create a domino effect on other industries, as global economic woes continue.

The impact of international conflict on gold

Now, let us consider the behaviour of gold prices historically during times of international crisis. The Iranian revolution happened in 1978 and 1979 witnessed the Iranian hostage crisis, the Iran-Iraq war and the Russian invasion of Afghanistan. Gold prices reacted strongly, rising 23% in 1977 as a preamble to the crisis. During the crisis itself, gold prices rose 37% in 1978, while 1979 witnessed gold prices skyrocketing to a whopping 126%.

Similarly, Iraq’s invasion of Kuwait in 1990, the September 11, 2001, terrorist attack and the US invasion of Iraq in 2003 sent gold prices up. Therefore, there can be no doubt in our minds that the threat of global political instability and war could well be the most important reason to invest in gold now to hedge against economic risks, as well as take advantage of the expected escalation in international gold prices.

The current supply and demand picture

There is a finite amount of gold on the planet… a fact which underpins the predicted inability of the supply of gold to meet the long-term demand, thus continually pushing the gold price higher. The mining of gold continues and new players, from various continents, have entered the market in recent years, but the picture remains; one of continued or increasing demand, against a static supply.

The practicalities of gold investment

Once you’ve decided that you want to purchase some gold, Physical Gold will scour the gold market on your behalf. Your gold can then be stored in our secure storage facility, or shipped to your address via a secure, insured service. The option which is right for you will depend on how much gold you’re purchasing, your reasons for buying gold and your access to secure storage.

How do you make money from gold investment?

Like any form of investment and any commodity, investors make money from gold by buying and holding the metal until the point at which it reaches a favourable price. If you purchased gold in 1970, for example, then you may have been able to acquire it at around a price of £15 per ounce. If you sold that gold in 2010, then you may have been able to secure a price of £912 per ounce!

Why do people invest in gold?

As the above example shows, there’s no doubt that gold can be an attractive investment opportunity for many individuals, but why do people invest in gold over other commodities, or instead of stocks or cash investments?

The reason many people invest in gold is mainly to do with the investment principle of ‘Diversification’. This is the practice of spreading your investments across different asset classes, usually with the aim of protecting your assets against potential losses in any one class.

For example, it’s likely that many people will hold some cash investments, which accrue wealth based on interest rates. Interest rates have been poor in the UK since 2009, which means these cash investments may have actually fallen in value when inflation is factored in. Similarly, if you own stocks and shares, they’re also vulnerable to poor performance at times of market uncertainty, such as the global economic situation we’ve experienced since 2008.

Gold is seen as a savvy way to diversify from such holdings. Commonly referred to as a ‘hedge’ to these other types of investments, it has historically performed well in market downturns, providing overall portfolio.

The history of gold investment

Gold has been seen as a valuable commodity throughout history, serving at times as a currency itself, or simply as an alternative store of wealth to paper currencies.

Gold is a commodity and therefore investing in gold is very similar to investing in any other valuable resource. The price of gold (and other commodities) is driven by supply and demand, with higher prices expected when either demand rises, or supply falls. However, the spot price of gold can be impacted by many other complex factors.

The Physical Gold Service

Investing in gold can seem like a daunting pursuit for the first-time investor. Even if you’re experienced in gold investment, the market changes regularly, as do those who operate within it and finding a long-standing investment partner who offers a personal, tailored service, can be difficult.

Physical Gold offers a bespoke, personalised service – which is suitable for both first-time investors, looking to invest securely in gold and experienced investors, seeking tax-efficient precious metals.

Your gold investment options

Individual purchase or sales

A lump sum purchase of gold coins, or gold bullion, can be suitable for those wanting to add gold to their portfolio immediately. Many gold purchases, bought through Physical Gold, are completely tax-free, and you can take advantage of our 0% commission rates and Buyback Guarantee. There are also special discounted purchase rates for those buying larger volumes of gold. Find out more on our tax-free gold page.

Why not take advantage of the benefits of the Physical Gold Director’s Pick

Monthly Saver

Just like saving into a cash account, such as an ISA, it’s possible to gradually build your gold holding over time, through regularly scheduled, gold investment. This makes an investment in gold affordable for all, providing greater flexibility when it comes to growing your gold holding.

Pension gold

Like other forms of investment, such as shares, it’s also possible to hold gold as part of your Self Invested Personal Pension (SIPP). This places gold investment bars as part of your pension funds, locking away the value until you need it for your retirement years. Investing in gold via your pension is similar to other investment options and it can also be held in the same pension as stocks, bonds and cash. You can find out more about why, and how, you might want to purchase gold bullion within your SIPP on our dedicated pension gold page here.

Click here to download our guide to ‘Investing in Gold and Silver’.

Invest in gold with Physical Gold

So, are you looking to invest in gold? Our investment advisors can guide you on gold investments and answer your queries about the market. Call us on 020 7060 9992 to discuss your requirements.

 

Image Credit: Wikipedia, Wuesten Igel, Money Metals, Mathis Lesieur, Heather Truett and Covilha