This isn’t surprising considering that throughout the course of recent history cryptocurrencies went from being regarded as a channel for money laundering to becoming a serious proposition for investors very quickly. It now is not just for the opportune amateur investors that’ve got caught up in the media hype as even big businesses and knowledgeable entrepreneurs including Elon Musk have their eyes on the digital currency and many consider it as a genuine form of payment as a result.
Now, we can see major banks testing the crypto waters as they’re simultaneously entering the race to set up their crypto-related operations. Amongst these are the likes of Morgan Stanley and Bank of America launching their own crypto-focused research divisions. State Street revealed their dedicated digital finance division to the public, and following this, JP Morgan and Goldman Sachs have started rolling out their own crypto trading assistances and services.
Our traditional understanding of an asset in finance terms is generally anything of worth to an individual or company, or more specifically it can be regarded as a resource ‘of value’ that can be, in turn, converted into cash. Typically, an asset can often generate cashflows. For instance, stocks can provide dividends, bonds can provide coupons, loans can provide interest, etc.
However, there are assets in existence that don’t tend to produce cashflows, but they’re still regarded as an important asset class. For instance, this can include assets such as gold, wine, and even art. Gold is widely considered to be an important asset class by many. This is the case considering it has limited industrial use that doesn’t generate cashflows. The collective thought is that gold is valuable, and this is what provides the value to the asset; an inflated artificial value that we give to a shiny lump of metal.
This can in turn apply to any fiat currency as money is only a credit that a currency’s user gives to the issuer. Thereby, for a currency to prosper, belief and confidence is the most important factor for its success. The issuers of fiat currencies are sovereign entities that are deemed to be the most trustworthy. If an economic crisis occurs that leads to governmental distrust, the value of the fiat currency has the potential to drop substantially.
Risks do exist and they are well known, and some would argue, substantial.
In the past, financial institutions and investors have primarily recognised only “traditional” asset classes. They regard cash and equivalents, bonds, and stocks as the big three. However, since the rise of cryptocurrency (a decentralised means of digital currency) in our society, many have questioned whether they should also be regarded as an asset class. This debate is more important now than ever before, especially as legislators and policymakers have continued to ponder upon taxing cryptocurrency in line with other assets.
Professionals must now begin to change their outlook on cryptocurrency and adapt processes to enable investors to deal with cryptocurrency more effectively. Gone are the days of solely dealing with traditional assets.
There is a broad consensus that Bitcoin is the most valued—and thereby appealing—cryptocurrency on the market. Experts have largely accredited this to its scarcity, Bitcoin in particular benefits from investor confidence because of its snowballing popularity. Just as people in society believe in the value of diamonds because others believe in it, Bitcoin shares this artificial value.
Bitcoin was the first scarce digital asset ever created. Societies have always based the price of a currency on this concept of scarcity, which is why precious metals have been the pillar of many economies for centuries. Bitcoin supply had low inflation built-in from day one. To ensure that the issuing of Bitcoin would eventually cease completely, its creator Satoshi Nakamoto encoded a way to halve Bitcoin’s mining reward roughly every four years; the Bitcoin supply will thereby never exceed 21 million coins.
But what is driving that faith? And what is underpinning the huge increases in the value of cryptocurrencies? This is more to do with its ability to store worth relative to other asset classes. Widespread social adoption, together with their privacy, security, and transferability, make cryptocurrencies a significant asset class to store values.
Cryptocurrencies do not follow the same rules as fiat currencies, or even secured assets; instead, matters tend to get complicated. Given that a cryptocurrency does not generate or support cash flow, it needs to be valued against potential and —critically—future prices. That then opens the door to several different valuation methods and guess what—our old friend gold is back. Amongst the differing valuation models now available—the stock-to-flow method, institutional participation method, and high-net-worth participation method—we find the gold valuation method.
But let’s not forget this is a new asset class, so we would expect investors will consider a range of valuation methodologies to estimate future value. This is, however, not risk-free. It is a new asset class and one that does not exist physically. It is not gold, as we have repeatedly said. Risks do exist and they are well known, and some would argue, substantial. We are therefore firm believers that the financial industry needs to address—and support—government initiatives around regulation.
The key questions remain: Should institutional investors dive in, and is this in fact a dedicated new asset class?
El Salvador became the first country in the world to adopt Bitcoin as its national currency, allowing people to use a digital wallet to pay for everyday goods. Many countries are considering issuing their own central bank digital currencies. All these developments tell of cryptocurrencies’ future potential in line with an asset class.
The primary reason why some do not regard cryptocurrency as an asset class is because of its unclear regulatory environment and high volatility. However, more and more institutional investors use cryptocurrencies to hedge against inflation and currency debasement and to diversify their portfolios in the pursuit of higher risk-adjusted returns.
This is, without doubt, a new asset class and one that will increasingly gain acceptance and the participation of institutional investors as time goes on.
A gold IRA refers to a specialised individual retirement account. You’re enabling investors to acquire gold and other precious metals in the form of bars, bullions, and coins to be part of their retirement investments. When you invest in gold through a gold IRA, you can have peace of mind knowing your precious metals are safe from the start. This is because gold serves as a protection against inflation and other market crashes. However, setting up this retirement account can be complicated when you don’t know where and how to start. Read on to learn how to invest in a gold IRA with these five easy steps.
Before you can officially set up your gold IRA, it's best to know if this retirement account can work for you and your financial situation. To get started, below are a few things you need to know:
There are many things to keep in mind when opening a gold IRA. As such, you should check out a number of resources before committing.
Now that you're familiar with the essentials of a gold IRA, the next step is to choose a company that can help you open an account, along with other tasks such as transferring funds and purchasing precious metals. A gold IRA company may also serve as your account custodian since they can also assist with the necessary paperwork and comply with the Internal Revenue Service (IRS).
Picking a gold IRA company should be done thoroughly if you want to achieve the best possible outcome. For instance, it will be best to consider the following factors when making a selection:
Now that you’ve found the right company for your investment, the next step is to fund your account. By doing so, you can start investing. Typically, funding your gold IRA can be done in the following ways:
Once you have the funds in your account, you can start selecting the precious metals you want to invest in for your retirement. You can also invest in other precious metals like palladium and platinum for your gold IRA.
Seeking assistance from a precious metal specialist can be an excellent idea in knowing which metal to include in your investment portfolio. With them at your side, you can make sure the metals you choose adhere to specific IRS rules and regulations to avoid mistakes. For example, if you're investing in gold bars, bullions, and coins, you need to ensure the gold is at least 99.5% pure for an IRA.
After choosing your gold and other precious metals, the next step is to buy them. You may work with your gold IRA company to keep it safe and secure. However, when it comes to purchasing your desired metals, the process usually varies. This will depend on the account custodian you'll be working with. Some custodians allow you to buy your investments directly from them. While others would require you to purchase your metals from a separate dealer and let the custodian facilitate the buying process on your behalf.
Retirement is one of the essential stages of life. As you withdraw from your active working life soon, it's important to become more financially stable to ensure comfortable retirement years. Therefore, if you're looking to set up a gold IRA account, keep these steps in mind to jumpstart your investment efforts as soon as possible.
Launched in 2009, Bitcoin signalled the start of the cryptocurrency movement. Despite there still being plenty of mystery surrounding its creation, Bitcoin mania shows no signs of slowing down.
On its way to becoming a global currency, more merchants are beginning to accept Bitcoin as a legitimate payment form, and some cities around the world even have dedicated ATMs for the cryptocurrency. Some of the first tangible items ever purchased with Bitcoin were two large pizzas in 2010, the value of which today would be worth more than $190 million. Although it continues to attract scepticism from the world’s central banks and many institutional investors, cryptocurrencies don’t deter the savvy capitalist.
As an investor, it is important to create a diverse portfolio that contains both safer and riskier investments. Ideally, it should include a mixture of stocks, fixed income, and commodities, such as gold. Although adding cryptocurrencies to a portfolio is perhaps considered risky, having a good spread of investments avoids creating an unnecessary threat to your capital and protects your assets against economic turbulence. Smart investors should work towards building a complementary and well-balanced portfolio and, in the modern market, this often includes cryptocurrencies.
Over the past year or so, the perception of Bitcoin has slowly begun to change. Initially, it was misunderstood by people and labelled as untrustworthy and vulnerable to extreme short-term fluctuations in value. However, as household names such as John Lewis and Tesco continue to endorse Bitcoin and even accept it as a legitimate currency, attitudes are beginning to shift. Whilst there is still a long way to go in terms of regulation for Bitcoin, the reputational troubles it once faced have started to recede.
It is important that those looking to safely incorporate both gold and crypto into their portfolios use regulated providers.
Despite this, investors should still tread with caution when investing in cryptocurrency. As a relatively new currency, there is a lack of historical data and analysis that can be used to predict long-term performance. Unlike fiat currencies, such as the British pound, Bitcoin has a maximum supply of approximately 21 million coins. This has led some to believe that the scarce asset will continue to increase in value as government-issued currencies decrease. Others believe it could eventually become the first truly global currency. However, due to its unpredictability, investors should avoid ‘putting all of their eggs in one basket’ and consider adding other valuable commodities to their investment portfolios, such as gold.
While they are both finite resources, Bitcoin and gold play very different roles within an investment portfolio. Many people choose to invest in cryptocurrency for capital appreciation and because its volatility often leads it to being viewed as a quick way to make money. Gold, however, is often associated with longevity and is seen as a tool of wealth preservation. With a track record of thousands of years, the precious metal still carries importance in today’s society. Although its price has varied, it has remained consistent and increased by an average of 49% over the past five years, making it a safe addition for any investment portfolio.
Ultimately, gold and Bitcoin go hand in hand. Historically, when Bitcoin has crashed, gold has rallied and vice versa. The two assets can be very complementary and investing in both could help towards building a portfolio that benefits from both long and short-term profits, providing it is done safely.
It is important that those looking to safely incorporate both gold and crypto into their portfolios use regulated providers. Ideally, the company should also have a proven track record with other investors; this is particularly important for cryptocurrencies, where the landscape is still unfamiliar. Whilst newer cryptocurrencies, such as Dogecoin, can seem attractive to investors, their relative newness to the marketplace means that investors should proceed with caution, especially until more is known about their vulnerability to fluctuations.
By investing in both gold and Bitcoin, investors can also lower the risk of their portfolio and ensure that not all of their capital is tied into a high-risk investment, such as Bitcoin. By periodically converting some cryptocurrency into a more stable asset, such as gold, investors can potentially shield themselves from some of the currency fluctuations they may be exposed to if their investment portfolio was fully focussed on Bitcoin.
First time investors should do plenty of research beforehand and possibly even seek the advice of a professional adviser, to ensure they are being smart with their investments.
Whilst it is likely that Bitcoin is here to stay and will continue to gain popularity, investors should still tread with caution. Until a more concrete regulatory system is put in place, cryptocurrency will remain volatile. Smart investors should ensure their portfolios are well-balanced with other investments, such as gold or other precious metals, to protect their overall worth and create a safe haven for the future.
About Minted
Founded in 2018, Minted is a technology platform where anyone can buy, sell, save and transfer physical gold. With an easy-to-use mobile platform and app, Minted makes buying gold simple, safe and affordable. Customers can set up flexible savings plans and invest amounts of their choice into gold each month. With market-leading buying rates, Minted is the only gold savings app where users can get ownership and delivery of pure 999.9 24kt LBMA physical gold.
Minted’s users aren’t tied into a contract and can sell their gold instantly, at any point, at better rates than on the High Street. Regulated by the Financial Conduct Authority, users’ gold is safely stored in a high-security UK London vault and is fully-insured to market value.
The leadership team includes co-founder and CEO Hamzah Almasyabi, co-founder Haroon Siddiq, co-founder and consultant Shahid Munir, and managing director Rebecca Hutchinson.
Visit the Minted website to find out more about buying and saving in gold: https://theminted.com/
Gold is one of the longest-standing assets in the history of human investment. The asset has long been a store of value for hedging the economy. For some time, gold was even the basis for the US dollar’s value. However, a new asset has come into play: Bitcoin.
Considered by many to be digital gold, the next step in the precious metal’s history, investing in Bitcoin is debatably a good idea. If you’re unsure as to which is the best place to put your money, this guide is for you. We’ll break down the pros and cons of each investment, ensuring you know just where your funds should go. That, and we’ll establish the best places for you to invest in such assets.
Long-term investors might recommend still investing in gold. It’s what they know, after all, and it’s what made them successful in the past. They’re not entirely wrong, either.
For one, gold is still a reliable asset. It’s not too volatile, nor is gold going anywhere anytime soon. There are multiple ways to invest in it, as well.
Online gold exchanges, for instance, allow you to invest anonymously and with just a debit or a credit card. You simply have to create an account on the exchange and go from there. You can purchase the assets on the exchanges without much trouble, thanks to their various trading methods. They also allow you to hold the assets in a wallet - much easier than storing them with traditional gold.
Otherwise, investing in gold is expensive. You’ll need enough funds to afford a whole unit of the metal to start. On top of this, you’ll need to pay extra in vendor and convenience fees. Then you have storage fees.
Gold is still a reliable asset. It’s not too volatile, nor is gold going anywhere anytime soon.
Storing gold is pricey. You can’t just keep it in your home. You need a safe to put it in. Safes can be expensive, though they’re worth it to protect your investment. Otherwise, you can pay a monthly fee to store it in a third-party space. However, note that you’re putting control of your assets in someone else’s hands if you do so. This is also an endlessly recurring cost on your investment.
Also, while gold is a fantastic stable investment, it’s not a great one for short-term profits. Sure, the asset may rise in the long-term, especially when considering the global economic climate, but otherwise, it stays around the same price. It could be years before you see a significant profit on your gold investment.
If you’re risk-averse, then this is great news for your investment personality. Otherwise, you may want to put funds elsewhere.
Bitcoin is based on a blockchain. There’s no intermediary to go through, meaning transaction fees are much cheaper than otherwise. It’s also a global currency, allowing you to convert Bitcoin to any fiat, and vice versa, no matter where you are in the world.
On top of this, there is a limit on Bitcoin. There can only ever be 21 million of the asset, preventing inflation that fiat currencies are susceptible to. No one can create more Bitcoin - only that which is in the market can be traded. Bitcoin is verified by miners, users that take advantage of their computer’s power to ensure there isn’t any double-spending or similar bad activities.
Becoming a miner is difficult, but they are rewarded handsomely in Bitcoin. The more miners that are out there, the more Bitcoin that is put into circulation. Over time, this makes the asset less rare, eventually causing the price to stabilise. However, note that getting in early, assuming the asset is successful, would mean holding such a rare asset once it stabilises.
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Speaking of stabilisation, Bitcoin is much more volatile than gold. The price has gone up or down by the thousands in just a day, throwing off many investors. Those who aren’t a fan of risk might want to heed this activity. Of course, this is great for short-term profit if you’re smart. The long-term prospects of Bitcoin are yet to be decided.
Now you’re aware of both Bitcoin and gold. Decide which is best for your investment portfolio in 2021. That way, you’ll be better off in the future with your funds.
Tesla, the world’s highest-valued automotive company, bought around $1.5 billion worth of Bitcoin in January and signalled its intent to start accepting the cryptocurrency as a form of payment.
In a securities filing on Monday, Tesla said it had “updated its investment policy” and was looking to invest in “reserve assets” such as gold, digital currencies o gold exchange-traded funds. The company also said that it had purchased $1.5 billion worth of Bitcoin and could “acquire and hold digital assets from time to time or long-term".
"Moreover, we expect to begin accepting Bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis," Tesla continued.
The news promptly caused the price of Bitcoin to surge 14% to a record high of $43,968 per token.
Tesla’s move into Bitcoin represents a significant milestone in the cryptocurrency’s uptake among businesses. While some financial institutions, including PayPal, have moved to adopt the currency as an accepted form of payment, Tesla is the highest-profile non-financial company to invest heavily in it.
With Tesla’s cash and cash equivalents coming to around $19 billion at the end of 2020, its new Bitcoin investment is also a significant move for the company itself.
The development comes on the back of comments from Tesla CEO Elon Musk, who stated that Bitcoin was “on the verge” of becoming more accepted among investors.
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“I was a little slow on the uptake,” he said in a chat on the social media app Clubhouse, adding that he should have bought into Bitcoin eight years ago.
Musk has also recently become one of the principal drivers behind the dogecoin cryptocurrency, with his “joke” comments about the digital token raising its market value by over 800%.
While many are excited about the industry's growth potential and understand turbulence comes with innovation, others wonder how they can still invest in digital assets with a semblance of stability.
Many herald stablecoins as a solution. Palladium-backed cryptocurrency all have bullion as a reserve asset. They will never fall below the underlying asset price but can eclipse the spot price depending on the coin's popularity and trade volume.
The idea of virtual currency backed by bullion like gold and silver has been tried numerous times. Arguably the most successful before the advent of cryptocurrencies like Bitcoin was E-Gold, co-founded by Douglas Jackson. The coin proved to be very popular at its peak in the 1990s, with at least 1,000 new accounts made each day. However, authorities cracked down on the coin and mandated Jackson to adhere to a variety of financial regulation rules and standards, turning E-Gold into a shadow of its former self.
An ideal modern-day stablecoin should be able to perform main functions. It should have the capability of acting as a medium of exchange to permit holders to buy and sell goods, function as a saving asset (without loss of value), and be used as a unit of account to compare the cost of goods and services.
Stablecoins backed by precious metals stand out for a few reasons. Cryptos backed by fiat currency, like Tether's USDT, remain the most well-known class of stablecoins. But many are wary of fiat currencies' long-term stability, especially in 2020, as national governments pursue a variety of artificial stimulus to keep economies afloat during the coronavirus.
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Countless civilisations have treasured precious metals like gold, silver, platinum, and palladium for their utility and beauty. Bullion is recognised and accepted across the world for buying and selling.
While many think precious metals are only valuable as a monetary tool, many have a wide range of industrial and manufacturing uses. Palladium is a vital component in catalytic converters to remove hydrocarbons, carbon monoxide, and other potentially harmful gases from vehicle exhaust emissions. The converter is one of the most expensive parts of a vehicle - often costing up to $1,000 alone.
The vast majority of silver mined in the modern world is a byproduct of manufacturing. The industrial uses of precious metals give them an additional allure of value, making them in the eyes of some a stronger stablecoin base than fiat currencies (or other crypto-collateralised) stablecoins like Basecoin.
Perth Mint Gold Token (PGMT) is one of the market's most popular crypto-backed stablecoins. While some projects are vague about their bullion reserves, PGMT tokens are backed by gold from the Perth Mint, managed by Australia's government.
The Mint offers the GoldPass app that issues a certification with all issued gold bullion. PGMT holders can simply use the app to confirm their digital assets are backed by a gold reserve. Government-backed gold bullion gives PGMT a large degree of legitimacy and viability in the cryptocurrency world, making the token a popular choice for investors interested in crypto-backed stablecoins.
Another well-known choice for those making their first foray into the cryptocurrency stablecoin world is PAX Gold (PAXG). PAXG coins are backed by one ounce of a London Good Delivery Bar. Like PGMT, PAXG coins are seen as highly legitimate in the precious metal backed-cryptocurrency industry due to their connection with a government entity.
The industrial uses of precious metals give them an additional allure of value, making them in the eyes of some a stronger stablecoin base than fiat currencies (or other crypto-collateralised) stablecoins like Basecoin.
PAX Gold's parent company, Paxos, is a New York State Trust Company and received approval from financial entities in New York to operate. Having to adhere to a wide range of US laws and regulations gives Paxos a degree of credibility in the crypto world - boosting the popularity of its flagship precious metal-backed stablecoin.
Investors need to be careful when choosing a precious metal-backed stablecoin to buy. They should carefully study the project's website to confirm they have audited bullion reserves conducted by a legitimate third party.
Investors should confirm the project has a seamless bullion redemption process that is fair and economically viable. Investing in the wrong project can lead to a loss of money and other headaches.
Hamzah Almasyabi, co-founder and CEO of the gold-buying platform Minted, outlines the benefits and drawbacks of adopting an investor trading app.
Some of the best-known investment apps, such as Freetrade, Trading 212, Plum and Moneybox, have reported a strong uptick in customer numbers since the start of March, when the UK Government’s lockdown restrictions were imposed. However, in truth, consumers had become more interested in managing their own finances online well before the pandemic. Some platforms have noticed more interest, particularly from younger online investors, who are attracted by the familiarity and gamified nature of the latest investment platforms across a range of asset classes. Equally, older people or more experienced online investors have been exploring ways to make their money go further, sometimes with a view to bringing forward their retirement.
The convenience and simplicity of many new generation investor trading apps is helping to democratise the world of investor trading. It is allowing people to invest in stocks and shares, or precious metals and other commodities, using their mobile phone, while sitting at their own kitchen table. Of course, there are risks but there are also incredible opportunities for people who want to get involved.
When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash. Some platforms offer newcomers a chance to spend virtual money, just to see how their investments might have fared in the real world. Such ‘try-before-you-buy’ services also allow users to test the app’s functionality and make sure it suits their preferences. However, convenience and user-friendly architecture shouldn’t be the main criteria when deciding where to invest for the first time. It makes sense to download a number of options, try them out and compare the terms and conditions of their offer carefully.
When considering investing online for the first time, it makes sense to try out various platforms before starting to invest actual cash.
In some cases, the precise nature of the investment opportunity may not be clear, particularly to the novice online investor. For example, some platforms may appear to be offering a chance to buy stocks and shares, when in fact they are just giving the investor exposure to any movement in the value of the shares. If the investor wants to own shares, this may not be the right option for them.
In a climate of significant stock market volatility, interest in ‘safe haven’ assets such as gold has increased significantly. While there are fewer gold-buying platforms to choose from, there are still some important differences to be aware of. Gold Exchange Traded Funds (ETFs) are popular with some individuals because they provide an easy way of gaining exposure to any increases in the value of gold, whilst still having easy access to the funds if they are needed. On the other hand, gold investors looking to the longer term may prefer to own a physical asset, which has intrinsic value in countries around the world. Buying physical gold can now be achieved without incurring excessive entry and exit costs, making it possible for people with modest amounts of cash to invest incrementally in this luxury asset for the first time.
Before becoming an online investor, individuals should take a step back and consider their personal and financial objectives, taking into account the amount of money they can afford to invest and their risk appetite. These factors will not only influence their choice of asset class, but the features they look for when considering different investment platforms. If any platforms appear to be downplaying risk, over promising returns, or pushing the investor to spend money within a certain timeframe, they should be treated with caution.
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As long as investors have taken the right steps to prepare themselves and understand the potential risks and rewards, online investing can be an empowering and enjoyable experience. What started as a new habit during the pandemic, could have a positive effect on financial wellbeing.
The price of gold reached a historic high on Wednesday, changing hands at $2,040 per ounce XAU= in early trading. The overnight surge means that the price of gold has now risen by more than 30% since the beginning of the year.
Gold has been boosted throughout 2020 by a combination of a weakening US dollar and mounting investor uncertainty in the health of the economy as the COVID-19 pandemic continues to push countries into recession.
Giles Coghlan, Chief Currency Analyst at HYCM, pointed to this investor uncertainty as a key reason for the surge in gold prices. “We know that investors rally to gold in times of uncertainty,” he explained. “The reason for this is simple – gold is a safe haven asset that is able to maintain, and indeed increase, its value during volatile periods.”
“Investors and wealth managers have been buying up gold due to their concerns over the global economy’s ability to effectively recover from the COVID-19 pandemic. The fact that private banks are encouraging their clients to buy gold as a means of hedging against inflation and currency fluctuations shows that the market is not confident that we have witnessed the end of the coronavirus outbreak.”
Coghlan also advised investors eyeing gold to be aware of the Volatility Index, which provides a 30-day projection of the volatility likely to be experienced by major gold markets. Drops in the VIX are normally followed by a rise in gold prices, and vice versa.
Giles Coghlan, chief currency analyst at HYCM, analyses the surge in gold prices and how the COVID-19 pandemic may continue to influence its fortunes.
In the future, investors and traders will regularly look to 2020 to understand just how different stocks, bonds, currencies, commodities and investment securities react in times of prolonged market volatility. What makes this year stand out from other volatile periods (the 2008 global recession immediately comes to mind) is twofold.
The first has to do with the COVID-19 pandemic being a health crisis shrouded in uncertainty. We simply do not know when or how the virus will cease to dominate government agendas, business activities and consumer behaviours. As a result, traders and investors cannot predict with any certainty what the coming months, weeks, or even days will bring. This makes managing an investment portfolio particularly difficult, forcing investors to contend with something beyond their control.
The second has to do with the long-term implications of COVID-19 on the global economy. There are concerns that the coronavirus will trigger a reverse in globalisation; for example, new popularity for protectionist policies to safeguard the future of national industries and a contraction in global supply chains. It is too early to tell whether this is likely to be the case, but either way, we must acknowledge the enduring influence COVID-19 will have on businesses, government and investor actions for many years to come.
At the moment, we have reached what I consider to be a critical juncture. We have weathered the initial outbreak of cases, and countries are now relaxing social distancing measures as a result. In reaction to this, the financial markets have been posting positive figures. On 20 July, the Euro hit its highest level against the US dollar since March – a consequence of EU leaders negotiating a €750 billion recovery plan. In response to this plan, the Dow Jones Industrial Average rose 1.03% and the S&P 500 regained positive territory for the first time since 8 June.
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While this is welcoming news, such market movements only reveal part of a bigger story. The stock markets may be making gains, but so has the price of gold. What makes this particularly interesting is the fact that investors tend to rally to this so-called safe-haven asset in times of uncertainty. Gold prices are currently trading at over $1,800 per ounce – a major milestone that has not occurred since 2011. What’s more, the gold price has gone up by around 19% in 2020 alone, and commentators are hopeful that gold will surpass $2,000 per ounce by the end of the year – a record breaking achievement.
Such projections have left many investors scratching their heads. Have we really entered a period of market recovery or are we witnessing the calm before the storm – a second outbreak of cases or significant economic downturn that will send shockwaves across the major indices?
Put simply, gold prices are ideally positioned to increase over the coming months. This is not due to an increase in consumer demand for the precious metal, but rather a reflection of investors using gold to hedge against market uncertainty by improving their risk-adjusted returns and also having access to a liquid asset able to hold its value in times of volatility.
It seems reasonable to assume gold will surpass its all-time high of $1,920 recorded in September 2011 in the coming months. This will be a defining movement, and could spur on the buyer demand needed to break the $2,000 per ounce barrier by the end of the year. Of course, such growth will by no means be a straight-line trajectory.
The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic. However, signs at the moment seem to suggest that underlying market uncertainty is encouraging investors to flock to safe haven assets, with gold featuring at the top of their lists.
The reality is that the price of gold, like all assets, will be influenced by geopolitical events and the COVID-19 pandemic.
For those looking to buy gold, a useful reference tool is the Volatility Index, or VIX. By analysing future risk and investor behaviour, the VIX provides a 30-day projection of the expected volatility likely to be experienced by the major markets – a vital instrument in today’s climate.
Based on performances in the past, a drop in the VIX should be followed by a rise in gold prices. Conversely, a rise in the VIX will normally occur prior to gold prices dropping. That’s why investors looking to buy gold need to watch the performance of the VIX carefully to ensure they enter the market at the right moment.
Overall, investors should not rush to gold simply because it is rising in price. Any trade or investment decision needs to be influenced by a bigger strategy and lead to an ultimate goal. A common mistake is investors acting hastily and making rash decisions, instead of taking a step back and thinking how they can best take advantage of the market while at the same time not losing sight of their ultimate financial objectives. By understanding this simple point, investors and traders will be best positioned to make effective use of future gold price movements.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
Asian and London trade saw a jump in the value of silver on Tuesday, with a net gain of more than 8%. Spot silver prices rose as high as $21 per ounce, closing the gap on the Gold/Silver Ratio and regaining the ground lost since February.
Traders use the Gold/Silver Ratio to measure the value of the two precious metals relative to each other, with fluctuations generally ending as one metal catches up with the other or the surging metal returns to its original value. Gold almost always leads the way, but Tuesday’s frenetic market activity showed silver drastically reducing the difference to below 90 – having peaked at 124 in March.
“It’s a typical low liquidity summer market where prices tend to be easier to push, especially when momentum has been established as per the trifecta of support,” Ole Hansen, head of commodity strategy at Saxo Bank A/S told Bloomberg.
Commodities have fared especially well in Q2 this year, as the COVID-19 crisis has brought about seismic shifts in global markets and driven investors to seek havens.
Silver often experiences explosions in value under the right conditions. These typically involve rebounding manufacturing demand and increasingly loose monetary policy, both of which increase silver’s relative attraction as a store of value.
Speaking with the Financial Times, analysts at Citi predicted that both of these factors would drive silver prices higher over the next 6-12 months, potentially hitting $25 an ounce by the middle of 2021.
Fresmillo, a Mexico-based silver producer listed in London, has seen its share price rise by nearly 70% this year, marking it as the best performer in the FTSE 100.
Gold prices reached their highest level in eight years on Wednesday, while market shares saw a dip in investor enthusiasm.
Spot gold XAU= rose by 0.6% to $1,777.53 per ounce. Earlier, it hit its highest going rate since October 2012 at $1,779.06 per ounce.
MCX Gold futures also saw a price increase, and the SPDR Gold Trust announced that its holdings had risen 0.28% to 1,169.25 tonnes on Tuesday. Meanwhile, the pan-European STOXX 600 index fell by 1.6%, indicating a potential three-week low.
Investor concerns can largely be attributed to rising COVID-19 infection rates in some areas of the world, with Latin America’s death toll recently having reached 100,000 and record single-day infection rates being recorded in some US states.
However, broad political concerns have added to anxiety. Reports that the United States is considering placing tariffs on $3.1 billion of exports from western European nations, and that the EU may bar US travellers due to surging COVID-19 case figures, have not aided market positivity.
Neil Wilson, chief market analyst at Markets.com, commented that “Gold is a clear winner from this pandemic,” noting that the commodity was initially sold off in March as investors rushed to acquire cash immediately.
“Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher,” Wilson continued.
A time-tested asset
Historically, gold has maintained its value over time and built its reputation as a “recession-proof” asset class—largely uncorrelated with traditional market movements and economic fluctuations.
Despite this, in the current period of pandemic, panicked investors are placing bets on cash—the US cash market funds experienced $87.6 billion of inflows in seven days while the Bank of America reported that investors plowed a total of $136.9 billion into cash. It has gotten to the point where some banks were cleaned out of $100 bills as consumers took out large amounts of cash in a bid to protect them from the ongoing stock market crash.
While some believe that “cash is king” during a recession, over a longer period of time the nature of gold is more stable than cash. As banks are now slashing interest rates to encourage spending and boost the economy, so-called ‘idle cash’—is earning less interest. In addition, with inflation, idle cashwill not generate as much return in the long run as its purchasing power may depreciate over time.
This does not apply to physical commodities like gold as it cannot be printed like money and its value is not impacted by a government’s decision to change interest rates or to increase the circulation of a particular currency—making gold a more enticing choice for investors during times of volatility.
Even prior to the COVID-19 pandemic, gold performed exceptionally in economic volatility with an approximate 20% increase in 2019 alone. This is attributed to decreased investor confidence in traditional markets, stretching from stocks and equities right through to government bonds and investments which mere months ago appeared “safe”. This uncertainty is the result of a series of economic and political volatility which unfolded last year—from Hong Kong’s political situation, confusion around Britain's future within the European Union and Brexit, as well as unsettled US-Sinotrade ties, and deteriorating relations between Japan and South Korea.
Historically, gold has maintained its value over time and built its reputation as a “recession-proof” asset class—largely uncorrelated with traditional market movements and economic fluctuations.
Looking beyond 2019, historical data has also shown a similar pattern during the 2008 financial crisis where gold had a small slip during the initial market turmoil but rebounded and outperformed other assets in the following months. We could very well see the same pattern in 2020 as gold prices are now stabilising and rising after the Federal Reserve System (FED) introducing new liquidity injection facilities and the recent drop in interest rates.
Surging demand
Betting on gold’s performance as a safe-haven asset, panicked investors around the world are rushing to purchase this shiny metal, causing gold dealers to suffer shortages as a result of the surging demand and supply disruptions. Three of the world’s largest gold refineries – who together produce one-third of the world’s gold supply – have recently reopened and will continue to operate at 50% reduced capacity after being suspended for two weeks. It means that the supply for gold is now lower than before – making it more difficult for investors to access this precious metal.
Even before the pandemic, the process of purchasing and owning gold traditionally has proven prohibitive for some individual investors. Gold has traditionally been a negative-yielding instrument where investors have to pay to store, insure, and secure the asset, meaning that the purchasing and holding gold has historically been in the exclusive domain of traditional financial institutions and high-net-worth individuals (HNWIs) who can afford to pay for custodianship.
While there is now an increased demand for gold worldwide, the challenges to acquire this shiny metal have also increased.
Putting gold in the digital realm - a new, better form of gold
With the surging demand for this precious metal, the gold industry has evolved alongside technological advancements and the mass digitisation of the financial sector. The emergence of digital assets has given gold a new channel to shine in this digital space and has presented investors of every kind with a new way to purchase gold. One way is through “digital gold” - a digital token that is backed by actual gold bullions.
In light of the ongoing outbreak measures, the issues of physical gold are becoming apparent and extending beyond a lack of supply to deeper logistical nightmares - with gold dealers being unable to move gold across borders - or even out of the vault - as gold doesn’t come under essential items, causing delivery delays and gold funds to come to a complete halt. Mobility limitations can be solved by placing gold on the digital realm - allowing anyone with an internet connection to trade gold online without the inconvenience associated with storing, carrying, and moving gold. Digital gold enables gold to be transferred across international borders as easily as sending an online payment or a bank transfer - opening up the gold markets to globalisation and providing investors with greater utility and liquidity by reducing the barriers of entry to the gold market, allowing anyone to trade, spend, hold, and microinvest their savings into the world’s most time-tested asset class.
Even prior to the COVID-19 pandemic, gold performed exceptionally in economic volatility with an approximate 20% increase in 2019 alone.
However, anything placed in the digital realm opens itself to hacks, and the number of cyber threats has risen by 37% in March 2020 - with the average daily number of hacking and phishing attempts increasing by up to six times than the period before the pandemic. Trust, security, and data management remain a huge concern as there is a chance that sensitive data stored in centralised servers may be altered, misused, or stolen by malicious parties.
One way to combat cyberattacks is through blockchain, as the decentralised and immutable nature of the technology ensures that data remains unalterable and tamper-proof. A decentralised ledger system allows information to remain transparent while also maintaining a high level of data integrity. In essence, the distributed nature of blockchain provides no “hackable” entrance or point of failure that detrimentally exposes entire datasets. By applying this to digital gold, asset holders can maintain full visibility over their assets, transaction history, and even track inventory records while this data remains unalterable and tamper-proof through blockchain technology.
As COVID-19 exposes issues of mobility, convenience and accessibility in the traditional gold market, it opens an opportunity for the market to reinvent and future proof itself for the years to come. Although digital gold remains a new concept for many, it has the potential to not only help the gold industry evolve but also open up new possibilities across the financial ecosystem in a “post-COVID-19 world”.
Shaun Djie, COO & Co-Founder of Digix
Shaun Djie is the Co-founder of DigixGlobal and the Founder of the Ethereum Singapore meetup group. Shaun is currently a Technical Committee Board Member at the IT Standards Committee, organised by IMDA and Enterprise Singapore for Blockchain and Distributed Ledger Technologies, ISO/TC 307. Shaun is also a Regional Partner at Kenetic Capital, an institutional platform for blockchain advisory, technology and investment. He’s the co-author of Cryptocurrency Wizards (2018), a first of its kind book that covers the testimonials of movers and shakers in the Asian cryptocurrency ecosystem.
