Gold is a metal that has been unleashing passions since antiquity. Rare and unalterable, it is a symbol of wealth, the cause of major events in our history such as the colonization of Latin America in search of the El Dorado or the American Wild West during the gold rush.
Isn’t the term “black gold” used to refer to the scarcity and price of oil? An ounce of gold weighs only about 31 grams and yet it is traded at around 1,000 euros on the markets.
An atypical market
Gold has a particularity, its reserves are low and most of them have already been mined. Indeed, it is estimated that since ancient times about 145,000 tons have already been taken out of the ground but only 120,000 remain (25,000 tons have been lost)
Reserves are estimated at around 50,000 tonnes, but are decreasing rapidly due to annual production of around 2,500 tonnes. Two thirds of the offer is made up of this new production while one third is made up of recycling (mainly jewellery remelting).
To understand the gold market, it is also necessary to understand who the different potential buyers are. First of all, there are goldsmiths and jewellers, who represent more than two thirds of the purchase volumes, followed by electronics (where this metal is appreciated for its conductivity and stainless steel) and private individuals (mainly in high inflation countries such as India) at 15% each.
Finally, central banks hold nearly 30,000 tonnes of gold in reserve, or a quarter of the available gold. Some have tended to reduce their stocks to cope with the financial crisis while others (such as China) have seen a 60% jump in their gold reserves since 2009 at the expense of the Dollar for example.
Paper gold and physical gold
There are two methods of investing in gold, each with its advantages, disadvantages and many variations. Paper” gold includes all dematerialized investment vehicles, such as gold futures contracts issued by metal exchanges, ETFs (trackers guaranteed by banks) and certificates replicating the performance of precious metals.
These are speculative instruments that make it possible to play on the rise or fall of gold, just like investing in mining stocks (gold producers). A simple securities account with a broker is sufficient to make these investments with a rather speculative purpose, the use of CFDs with a generalist broker will also make it possible to use a leverage effect.
On the other hand, in the event of a major financial crisis, of a greater magnitude than that of 2007, there is still a risk of default by the counterparty that sold you the product and must guarantee its value. This is why the holding of physical gold, ingots, coins or jewellery has recently gained in popularity, fuelled by mistrust of financial intermediaries.
Physical gold is not without risk either, scams are numerous and secure storage is a real problem, it is better to have a solid safe. In addition, due to lower liquidity, the difference between the purchase price and the sale price is much larger. Finally, on coins or jewellery, for example, sentimental value is added to intrinsic value (the weight in gold), which can complicate the estimation of the price.
Gold in search of a second wind on the markets
Gold is a counter-cyclical asset, a safe haven to which investors turn when market conditions get more complicated. But this is not its only characteristic, it also has a strong tendency to appreciate when the US Dollar weakens, as it did between 2002 and 2012.
The EUR/USD parity jumped from 0.90 to 1.40 during this period, while gold prices increased fivefold from $300 per ounce to over $1,500.
Nevertheless, after reaching its peak in 2012, the yellow metal began to decline due to improved economic conditions and the prospect of a future rate hike in the United States. This has cooled precious metals investors, as gold, like silver or palladium, does not bear interest rates and is therefore not the best instrument to hold when inflation is low or zero and rates rise.
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