What is fiat currency, how it is used and does it work? In this post, I will answer all these questions and many more.
What is Fiat Currency – Definition
Fiat currency is currency established by government law or regulation. Fiat currency is not backed by a physical commodity. (gold, silver, etc.) The value of fiat money derives from the relationship between supply and demand, rather than the value of the material that the money is made from.
In the past, most currencies were based on physical commodities such as gold, or silver, but fiat money is based solely on the faith and credit of the economy.
Although modern currency is used on a daily basis to purchase millions of items, it is actually considered fiat money because it has no real value of its own. Its value depends directly on the issuing country’s economy.
It is well known that cigarettes are used as currency in prisons. In fact, inmates will mass cigarettes and use them as a medium of exchange. In both cases, cigarettes and paper money, or even bitcoins, or whatever a currency, is simply an agreement that a particular item is a currency.
Switching back to a gold-backed regime does not mean switching away from fiat currency, it means switching to a fiat currency system where paper money is linked to a commodity.
Paper Money Have No Intrinsic Value
We all like to think that our paper money, dollars, euros, etc. have intrinsic value, whereas value in a marketplace is determined by supply and demand, not anything intrinsic. In reality, our currency system, and any currency system, is backed by absolutely nothing, except a shared agreement by everyone to use the currency.
In addition, the government’s law or regulation that makes money, in reality, is useless without the consent of the currency users.
Due to the fact that fiat money is not linked to physical commodities, the value of the fiat money depends on the strength of the issuing country’s economy, and inflation, or even hyperinflation, could result if the government issues too much fiat money. In that case, paper money will become worthless.
Fiat Money Depend on Trust
Because fiat money is not a source or fixed resource like gold, governments and central banks have much greater control over its supply, which gives them the power to manage economic variables, such as credit supply, liquidity, interest rates, and money velocity.
On the other side, the threat of depression or serious recessions is still there and the mortgage crisis in 2007 and 2008 is living proof. A currency tied to gold is more stable than fiat money due to the limited supply of gold. Fiat money provides more opportunities to create bubbles due to its unlimited supply.
During the last couple of years, there are many voices calling for the return back to a commodity-based currency. Mr. Alan Greenspan, the former US head of the Fed, has also asked the US President to consider going back to the gold standard.
I hope my what is fiat currency – definition article was useful to you. If you still have any questions let me know in the comment section.
What is a precious metals bullion and why this term is used often when investors are discussing precious metals? I myself back in the early days didn’t know the meaning of the term bullion. I can imagine there are many folks now that are searching the internet for the exact meaning of that word.
What is a Precious Metals Bullion?
What is a precious metals bullion, and could it be a tool of investment? Precious metals bullion is when a particular precious metal (gold, silver, platinum, palladium) has been refined to such a degree that it is now in its purest form.
The term bullion applies only to certain metals. These metals are gold, silver, platinum, and palladium. These metals are also known as precious metals. In addition, ruthenium, rhodium, iridium, osmium are also considered precious metals but they are not used for investment purposes in any way.
The word bullion comes from the French Minister of finance, Claude de Bullion. The value of the bullion is determined by the value of the precious metal content, which is defined by its purity and mass.
The term bullion is used to describe precious metal bars, coins, and ingots. We should not consider bullion only large bars as many people do. In particular, all precious metal bars from 1gram to 1 kilo and even more are considered bullion as long as they meet the purity standards set by the authorities. In addition, precious metal coins are also considered to be bullion.
The specifications of bullion are regulated by market bodies or legislation. In the European Union, the minimum purity for gold bullion is 99,5% for gold bars and 90% for gold coins. The purity levels differ between precious metals.
-Precious metals bullion is gold, silver, platinum, and palladium in their purest form often kept in the form of coins, bars, or ingots
-Precious metals bullion is not only an asset, in many cases, but it has also been considered to be a legal tender
-Central Banks and other large institutional investors hold large amounts of precious metals bullion especially gold bullion
-Investors small and large can have access to precious metals bullion through specific dealers.
-Investors can also put money in precious metals bullion through exchange-traded funds (ETFs) or futures contracts
Why Central Banks Hold Precious Metals Bullion
It is no secret central banks hold a large percentage of the precious metals bullion bars and coins mined. Central banks hold precious metals bullion for many reasons. The main reason they do that is to protect their portfolios from inflation, a stock market collapse, and an economic crisis. In addition, they use precious metals bullion to deal with international debt and to stimulate the economy through gold lending.
Furthermore, central banks sell and lend precious metals to other banks and mining companies. Precious metal bullion is a useful tool in the hands of the central banks.
The most popular asset central banks like to hold is gold, followed by silver.
Why Investors Buy Precious Metals Bullion
2-Safeguard their savings during difficult times
3-Precious metals are a hedge against inflation
4-Protect their savings from geopolitical uncertainty (war, economic sanctions, and so on)
5-Currency risks (weak dollar)
7-Precious metals are a non-correlated asset (their price tends to rise during a market downturn)
How the Price of Precious Metals is Influenced
The price of precious metals is influenced, by demand from companies who use precious metals in the industry, in jewelry, and even in medicine, and by perceptions of the overall economy. For example, political, or financial instability, affect the price of precious metals.
Bullion Bars or Bullion Coins?
Before you decide whether you will be better off investing in bars or coins, you will have to decide which precious metal(s) would be the best option for you to purchase.
When it comes to precious metals investing, gold is the number one favored by central banks, governments, large institutions, and investors. Silver is coming second, a good choice indeed. Platinum and palladium might be a good choice but extra care should be taken as they can be too unstable.
After you decide which precious metal you want to purchase you might find yourself wondering what would be better bullion bars or bullion coins? I am in favor of bullion coins as they are easier to store and sell rather than bars.
However, bullion bars are still an excellent way to invest in precious metals. Keep in mind, it could be better to own ten 100 gr bullion bars rather than a 1-kilo bar. It is much easier to sell the ten 100 gr bars rather than the 1-kilo bar.
Investing in Precious Metals Bullion
There are many ways an investor can purchase precious metals bullion. This can be done in physical form, by buying physical gold, silver, platinum, and palladium. I prefer investing in physical form as the best way to own precious metals.
Another way for the investor to get access to the bullion market is through exchange-traded funds. (ETFs) Precious metals ETFs are securities that track the precious metals market. Precious metals ETFs is a hustle-free way to own the precious metal you happen to desire and it can be done via a regular broker or an IRA broker.
The futures market is another vehicle for the investor to enter the bullion market. A futures contract is an agreement to buy or sell a commodity or an asset at a particular price with the agreement ending at a preset date. You can invest in futures through a broker but I do not believe the futures market is a good idea.
Using the futures market to invest requires certain skills and expertise. A futures contract that does well will lead you to extremely high gains. If things do not work out you could find yourself facing bankruptcy.
The mining companies could also be a tool for someone to invest in precious metals. All you have to do is to purchase shares. A gold mining company’s shares could see a substantial price increase when the price of the yellow metal picks up.
You will have to be extra careful when selecting which mining company to invest in. It could be a good idea not to rely only on one mining company, you want to minimize your risk. Remember, mining companies are private enterprises and the companies could be subject to nationalization, fraud, mismanagement, and so on.
Precious metals bullion is a popular investment asset. Institutional investors, central banks, and smaller investors are including precious metals in their investment portfolios for their own reasons.
Gold is the most popular precious metal and rightly so. Silver is coming next with the Platinum following in the third position and Palladium last.
There are several ways to invest in precious metals bullion. In my opinion, investing in physical form is the best way to do that. Nevertheless, gold ETFs are a good option too. The mining companies could be risky and the futures options are something I do not recommend unless you are familiar with the way futures work and know the risks involved.
There is no precious metal investor that hasn’t come across the term South African Krugerrand. So what is a South African Krugerrand this is the question I will answer here for you.
What is a South African Krugerrand
A South African Krugerrand is a gold bullion coin produced in South Africa. The first Krugerrands produced were back in 1967. It was a co-operation between the South African Mint and a precious metals gold refining company.
The reasons the South African government decided to mint bullion coins were to promote gold to the world, to support their booming gold mining industry, to promote gold to the world, and to make gold accessible to the public in general.
The krugerrand took its name from South Africa’s first Boer president Paul Kruger and Rand. Rand is the country’s basic unit of currency.
The coin depicts the face of Paul Kruger on one side and on the other side, it depicts the springbok, one of South Africa’s national symbols.
The South African krugerrand is a gold coin designed to follow the price of gold. As a result, its price follows the price of gold.
South Africa started minting gold bullion coins (Krugerrands) back in 1967
Krugerrands were massively produced in the 1980s
Krugerrands are still very very popular among gold investors
Not an aesthetically attractive coin but, an honest and durable coin meeting all bullion standards
Since 1967 over 50 million ounces of South African Krugerrands have been sold to investors and collectors
Krugerrand is considered to be a legal tender in South Africa
South African Krugerrand History
1967 was the year South Africa introduced Krugerrands to the rest of the world. Although in the US owning gold was illegal, the American government allowed its citizens to own foreign coins. As a result, Krugerrands became popular in the States.
In 1971 most western countries started imposing sanctions against South Africa because of apartheid. Throughout the 1970s and 1980s most western countries one after the other imposed sanctions against South Africa.
In 1970 South Africa was the number one gold producer globally. In fact, South Africa mined over 75% of the yellow metal worldwide. It was an easy task for Krugerrands to become the number one investment choice for gold investors.
In 1980 the South Africans introduced three more sizes of the bullion coin. They were 1/2, 1/4, and 1/10, a.of an ounce size.
Krugerrand suffered from these sanctions. In 1985 the United States banned Krugerrand. In 1994 apartheid was abandoned and consequently, the west lifted its ban. By that time the Krugerrand had lost its place as the number one choice for investors.
In 2000, investment gold became tax-free in the EU and the UK. Consequently, there was a demand increase for bullion bars and coins including Krugerrands.
During the 2008 financial crisis, Krugerrands became popular again among investors. The South African coin became popular worldwide and in the US until 2011. Those years investors bought millions of Krugerrand coins.
How are Krugerrands Manufactured
Krugerrands were designed to be tough. That is why they contain a small amount of copper. The coins are manufactured to weigh more than an ounce because an ounce of gold which is 91,67% of the coin and 8,33% of copper totals 1 and 1/11 ounces.
The copper added makes them tough and resistant to scratches compared with other gold coins that are made of pure gold. That toughness and durability are what make them so popular among gold investors.
Krugerrands Huge Success
The krugerrand is by far the world’s most popular gold coin. Over the years It has sold over 50 million ounces of gold. In the 1980s it accounted for 90% of the world’s coin market.
To grasp krugerrand’s huge success all we need is to take a look at the American Gold Eagle, an immensely successful coin that has sold over 20 million bullion in coins. That is well below the South African Krugerrand.
The Krugerrand Now
After the 1995 South African sanctions were lifted by the world, the krugerrand never fully recovered. South Africa is not the world’s leading gold producer anymore. As a consequence, the krugerrand doesn’t sell like hot cakes as it used to. However, in 2018 with investors flocking to buy gold, the Krugerrand became very popular again.
The revived popularity of gold followed by the large increases in gold bullion prices led the South Africans to introduce the silver Krugerrand coin. That was in 2018. The Krugerrand silver coin has 99,9% purity and it has the same design as the original gold Krugerrand coin.
Nowadays Krugerrands are still very popular among investors. They combine durability and are easy to store in small sizes. They appeal to both professional and private investors who want to invest in physical gold or silver. If you want to invest in Krugerrands make sure you do it through a reputable dealer.
Investing in South African Krugerrands
Investing in gold is paramount for serious investors. That is because gold is a non-correlated asset and with gold, portfolio diversification can be achieved.
The krugerrand is the coin you will find available in any gold broker together with the American Gold Eagle, the Canadian Maple Leaf, the Australian Kangaroo, the British Gold Sovereign, and many others. It is my favorite gold coin because it is different and because it is durable.
Investors are buying physical gold because they want to safeguard their savings, protect themselves from the fluctuations of the dollar, protect their savings from geopolitical uncertainty and war, and to protect their savings from the oncoming economic crisis.
I hope my what is a South African Krugerrand post got you covered. If you have any further questions or queries feel free to write a comment and I will get back to you.
Palladium prices increased on Monday, settling within the $2,200 cost range, as the US dollar continued to drop for the fourth straight day. It looks like palladium comes back.
Palladium Comes Back – Behind Reasons
Palladium attracted assistance just recently by capitalists’ hopes about encouraging coronavirus injections, which will most certainly stop any more lockdowns and also support the recuperation of economic activity to pre-pandemic levels.
Amidst many countries’ measures to relieve the coronavirus lockdowns, the global supply is decreasing of the metal that is greatly used in the production of cars and truck parts as well as parts that decrease pollutant emissions.
The buck index fell against a basket of money by 0.1% to 92.9 points since 13:23 GMT, after hitting a high of 93.1 and a reduction of 92.8.
Palladium September futures dropped 3.2% to $2,212.9 an ounce as of 13:25 GMT, after hitting a high of $2,233 and a reduction of $2,144.4.
Investing in gold and coins could be a headache for the new investor. There are many ways to invest in gold but not all of them are recommended. In this article, I will present to you all ways of gold investing and I will explain why investing in physical gold is the best way to invest in gold and coins.
In today’s economic environment, it is crucial for the investor to have part of his/her portfolio invested in gold. In these troubled times, there should not be an investment portfolio that does not include gold.
Investing in Gold and Coins
Gold in the Past and Gold Now
In the past, humans used gold as a way to facilitate trade and to accumulate and store wealth. In particular, there was a gold standard policy where early paper currencies were generally backed by gold with every printed bill corresponding to an amount of gold held in a vault. This approach to paper money lasted well into the 20th century.
Nowadays the gold standard policy has been replaced by fiat money therefore, the link between gold and paper money has long been broken. Nonetheless, investors and central banks, still consider the yellow metal a paramount investment tool. For example, central banks still own huge amounts of gold.
Who Buys Gold?
It is not only investors who buy gold. In fact, 50% of gold demand comes from jewelry. People love to wear gold.
Another 40% comes from direct physical investment in gold bullion, gold bars, and coins, including all collectible numismatic gold coins, medals, and so on. Physical gold investors include central banks and individual investors. The Chinese and Russian central banks are some of many central banks who invested in physical gold recently.
Gold is considered to be a safe haven asset. Every time there has been political and economical instability, gold has been called upon to save the day. When a paper currency loses its value and global inflation starts rising, gold offers security and acts as a safe haven for the investor.
Last but not least, industrial demand for gold is on the increase, especially in technology. Computers have gold and so do mobile phones. Gold is also used in electrical appliances, medicine, and so on.
Reasons to invest in gold
To protect and preserve wealth from unexpected events.
A hedge when the stock market is not expected to do well.
The weak dollar
Loss of confidence in central banks
Geopolitical uncertainty (Middle East, Brexit, ISIS, North Korea, Hong Kong.)
The US-China trade war.
The covid-19 caused recession
Low or negative interest rates
Dot Com Crash2001
Stock Market Decline
Gold Price Results
Gold Outperformed Stocks By Ratio
Investing in Physical Gold
Gold Bullion Bars
Gold bullion bars are a popular way to invest in gold. They are available in various sizes, 12kg, 1kg, 100gr, 50gr, 10gr, 1gr, etc. Gold bullion bars must be certified for weight and purity. A serial number is attached to all certified gold bars for security purposes. Bars’ purity must be 99.5% (24 karats) at least, whereas there is a number of manufacturers producing bars at 99.9% purity. (24 karats too)
Gold bars can be sold easily at any given time. However, it is best to own smaller size bars rather than the 12 kg or 400-ounce bar. Imagine, owning a 400-ounce bar and wanting to sell it. It’s not easy to find an investor willing to fork out $650,000 overnight. If you want to liquidate 10% of it you can’t exactly saw off 10% and sell it. The best option is to own smaller size bullion gold bars, as most gold investors do. They offer much better liquidity.
Gold Bullion Bars Pros
High liquidity (small size bars)
Gold Bullion Bars Cons
Gold bullion coins is another popular way to invest in gold. Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition. If you are willing to invest strictly in gold, focus on widely circulated coins and leave the rare coins to collectors.
Bullion coins are mostly minted in smaller than one-ounce sizes, making them a more convenient way to invest in gold compared to larger bars. Reputable dealers can be found almost anywhere, even your local bank might be able to help you.
Gold Bullion Coins Pros
Gold Bullion Coins Cons
Gold ETF’s and Mutual Funds
Gold exchange-traded funds, (ETF’s) is an interesting way to invest directly in gold. Each share of these specialized tools represents a fixed amount of gold, such as one-quarter of an ounce. These funds can be purchased or sold like shares, in any brokerage. This is a simple and cost-effective way to invest in gold, especially for small investors. ETF funds hold gold bullion as their own asset therefore, you will not have to actually store your own bullion.
Mutual funds hold gold bullion and actually own gold companies. They are part of their own investment portfolios. Investors should be aware, only a few mutual funds focus solely on gold investing. Most of them own a number of other commodities, which have nothing to do with gold.
Gold ETF’s and Mutual Funds Pros
A simple way to own gold
Suited for small investors
Gold ETF’s and Mutual Funds Cons
No upside beyond gold price changes
If you believe that, because you possess a lot of gold jewelry, you own a small fortune, then you are wrong. In jewel manufacturing the amount of gold is small. The purity of gold is measured in carats. The purest amount of gold you can find is 24 carats. However, in jewelry 14 or 18 carats is common. Keep in mind, that a low amount of gold in jewelry does not mean that it is not good enough, as gold in its purest form (24 carats) could bend or deform quite easily.
From an investor’s point of view, jewelry will not reward you with high profits, as retail markups are up to 400% of gold’s value. However, bargains can be found at auctions or estate sales. This way you avoid the retail markup.
Gold Jewelry Pros
Gold jewelry makes you feel good
Gold Jewelry Cons
Mediocre gold investment
Investing in Paper Gold
Gold Futures and Options
Gold futures are contracts to buy or sell a particular amount of an item (gold) on a given date. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. Some contracts settle in dollars, while other contracts may settle in gold. As a result, the investor has to be very careful. Futures are suited to the experienced investor.
Options are also another way to invest in gold. They give you the option to buy a futures contract, without having to pay the contract outright. Instead, you will have the option to buy the futures contract at a preset time frame and price. An option might reduce losses to the price paid but, a futures contract based on a margin might require more capital than originally invested, in case of losses mount quickly. Options are also suited to the experienced investor.
Gold Futures and Option Pros
Small upfront capital investment to control a large quantity of gold
Gold Futures and Options
Indirect gold exposure
Need to be a financial expert
Gold Mining Company Stocks
Another way to own gold indirectly is to invest in gold mining and refining companies. You can do that by purchasing their shares. If gold’s price rises, so will its profits and the value of your shares will follow. Simple as that. However, you have to be thorough and diligent when selecting which gold mining company is worth investing in.
Mines are commercial enterprises, with problems such as flooding, subsidence, structural failure, mismanagement, negative publicity, nationalization, theft, and corruption. Such factors can lower the share value of mining companies.
Gold Mining Stocks Pros
Usually, track the gold price
You may get dividends
Gold Mining Stocks Cons
Indirect gold exposure
Mine operating risks
Exposure to other commodities
What is the Best Way to Invest in Gold?
As you can see there are many ways to invest in gold. They all have their advantages and disadvantages. If you want to invest small, then gold ETF’s could be best for you. You can also invest in gold coins and keep them safe somewhere at home.
For those who are willing to invest a large amount of money into gold, the best will be to invest in bullion bars and coins. Direct gold ownership is best because it has the ability to track gold’s performance. Most investors feel better when owing a tangible asset stored at an independent private facility.
If you are an aggressive and experienced investor with direct access to the markets, the gold futures and options market could be best for you. Beware though, that the risk is high, and so are the profits and losses.
Mining stocks are also an interesting way to invest in gold. Jewelry though isn’t worth considering at all.
Investing in gold offers several benefits including portfolio diversification and protection from unexpected events. A prudent investor always includes gold in his portfolio, usually around 10%.
There is no one size fits all investment however, you are now armed with the knowledge of how the industry works, and all you need to do now, is to consider all the available options and make the decision that’s right for you.
During these troubled times, ordinary folks have seen their life savings decimated. It is imperative for an investor to diversify his/her IRA investment in order to protect it. A Self Directed gold IRA investment could safeguard and protect your savings.
The American eagle bullion coin is one of the most popular gold coins in the world. Investors buy American eagle gold coins with no questions asked. This is due to the trust the US mint and government have earned over the years. This is why a large number of people buy American Eagle Gold coins. In addition, the American eagle gold coin is one of the few gold coins approved by the IRS for an IRA account.
Buy American Eagle Gold Coin
American eagle bullion coins are produced by the US mint. Gold collectors and investors appreciate the rarity and value of the American gold Eagle. These coins were first introduced in 1986 and are still been produced today. Depending on the weight, and rarity of the coin in question, gold eagles can be purchased for reasonable premiums over the market price of gold. In this post, we will analyze the American eagle bullion coins and the reasons for an investor to go ahead and actually invest in American eagle bullion coins.
To protect and preserve wealth from unexpected events.
Gold is a hedge when the stock market is not expected to do well.
The weak dollar
The loss of confidence in central banks
Geopolitical uncertainty (Middle East, Brexit, ISIS, North Korea, Hong Kong.)
The US-China trade war.
The covid-19 triggered financial crisis
The design of the American Gold Eagle is one of the most easily identifiable in the world. The obverse of the coin features the image of Lady Liberty depicted with flowing hair, a torch in her right hand, an olive branch in her left, and the US capitol building in the left background. The reverse of the coin depicts a male eagle with an olive branch in his Talos flying over a female eagle and her hatchlings in their nest.
American eagle gold coins are guaranteed by the American government. In particular the US government guarantees, their gold weight, purity, and content. In addition, the American eagle gold bullion coins are legally eligible for precious metals IRAs. (Individual Retirement Accounts) These accounts are tax-free growth or tax-deferred which means that you pay no tax upfront and can start saving right away. If you are interested you might as well have a word with your financial advisor about this.
Furthermore, the American eagle bullion coins are also one of the most widely traded bullion coins in America, typically affording investors narrow spreads between buying and selling prices.
Although, the sovereign gold coin has been around for at least 500 years, investing in gold sovereigns is still popular, especially in Europe.
Investing in Gold Sovereigns – Background
The sovereign is a gold coin of the United Kingdom with a nominal value of one pound sterling. Prior to 1932, it was a fully circulating coin with Britain’s then Gold Standard currency. Today, it is used as a bullion coin and is sometimes mounted in jewelry. So what are the characteristics of the British gold sovereign, that can attract investors to actually go ahead and invest in gold sovereigns?
To protect and preserve wealth from unexpected events.
Gold is a hedge when the stock market is not expected to do well.
The Ukrainian war
The loss of confidence in central banks
Geopolitical uncertainty (Middle East, Turkey, the oncoming world famine.)
The US-China trade war.
The covid-19 triggered financial crisis
The first British gold sovereigns were minted more than 500 years ago. They were minted under King Henry VII in 1489. In 1816, the British Gold Sovereign as we know it today was first introduced, and as the British Empire expanded under Queen Victoriaduring the 1800s, this coin came to be the world’s most widely distributed gold coin. The design of Saint George astride his brave steed, slaying the dragon, is common to the reverse of all variations of the coin.
It is estimated that only 1% of all gold sovereigns that have ever been minted are still in collectible condition. It is this relative rarity in relation to bullion coins and bars that leads to leverage whereby, in gold bull markets the value of these coins increases by more than the actual price of gold.
Unlike paper investments or speculations, British sovereigns are a real and permanent tangible value. Therefore, they offer two ways to build wealth. They can offer the best of bullion and numismatics in one investment. They contain the intrinsic security of bullion or precious metal in a pure form and can also offer additional profit potential, due to their aesthetic and historical appeal.
As gold consolidates around the $1500 mark, investors are turning to silver. Silver already enjoys a years high, but compared to gold, still has a long way to go. If we take into account that gold enjoys a six-year high, to silver’s one year, then yes silver has a lot going for it.
The truth of the matter is that silver has been consolidating for a number of years together with gold. Gold broke through this year and made some of the lost ground. On the other hand, silver’s breaking was not anywhere near gold’s. As a result the gold to silver ratio is 88 at this moment.
Gold, silver’s rival, consolidates at around the $1500 mark at right now, but it still has the potential to move higher. As long as the large economies around the world fall into recession, the trade war between United States and China, the possibility of a no-deal Brexit, the troublesome Italian Banks, the civil unrest in Hong Kong, the Genman Economy’s slowing down, the United States economy slowing down, Turkey is just about to turn its back to the west and join Russia. You will have to be mad not to own gold and silver.
Right now the US and the German economies are still vibrant but all economic data suggests both economies are slowing down. The recession will hit both countries in 2020. That’s my humble opinion.
If all hell breaks loose (no deal Brexit, Italian Banks collapse, US China trade war deteriorates, etc) then there is no doubt, the recession will be as bad as the 2008 recession.
If you are going to engage to the precious metal market, then silver is the way to go. The gold to silver ratio has dropped from 93 to 88 so the momentum is there. In my opinion silver at $17,10 per ounce is dirt cheap.
According to Peter Hug, Kitco’s global trading director, the demand for silver in Hong Kong is much stronger than the demand for gold. The Chinese are adamant, that silver is currently undervalued.
If gold reaches $1600 by the end of the year, then silver should be between $18,50 to $19,00. Nevertheless, the silver to gold ratio, will drop, one way or another.
So you’ve decided to take the plunge and put your money into precious metals. How to invest in gold and silver? What is the next step? Should you invest in paper gold rather than physical gold? Should you invest in bars or coins? What percentage of your total investment should be placed in gold or silver? If you invest in physical gold or silver, should you keep it at home, in the bank, or at a private vault? Would it be better to invest in the companies that produce gold?
These are some of the many questions investors have actually asked themselves when they decided to invest in precious metals. My aim in this post is to let you know what is the best option for the investor according to my opinion.
What to Do Before Investing in Gold or Silver
Before you go ahead with your investment in gold or silver, there are certain actions you need to undertake, if you want to ensure your investment is safe. After all, investing in gold is just an investment, and requires money, many times the savings of a lifetime.
Gold is just an investment, an investment that can be profitable under the right circumstances. An investor must never be passionate, must always keep a cool head, because gold in a certain environment tends to do well, and in another market, the environment tends not to do well. The investor will have to examine whether this is the right time to put his/her money on gold or not to.
Reasons to Invest in Gold and Silver
There are several reasons to invest in gold. The most important are: a) to protect and preserve wealth from unexpected events. b) a hedge when the stock market is not expected to do well.
To an ordinary person, a good reason to invest in gold is when paper money is worthless. That has happened several times, especially in the seventies when due to high inflation, paper money even the dollar lost its value dramatically. Low or negative interest rates, is also another reason for an ordinary person to preserve his/her wealth.
What Type of Gold Investment
There are two types of gold investment, physical gold, and paper gold. Physical gold is tangible, jewelry, gold coins, and gold bars. While paper gold consists of the E.T.F.’s, gold exchange-traded funds, or gold-related equities in the stock market. The latter is risky, as there is no guarantee that the fund holds the amount of gold it claims.
Why Should Your Portfolio Include Gold
Gold is the best way to diversify your assets. When the price of gold moves the opposite way of other types of investments, it balances out your returns when the other investments perform badly.
How Pure Your Gold Should Be
Pure gold 100% is too soft, therefore it is mixed with other types of metals, (silver, copper, etc) to improve its strength. Based on the content of gold, it is divided into Karat configurations. 9K(37.50%) 14K(58.33%) 18K(75.00%) 22K(91.66%) 24k(99.99%) Make sure you are getting what you paid for.
What is the Real Price of Gold
Just like anything else, supply and demand determine the price of gold. Other factors include Interest rates, inflation, political instability, stock market prices, and currency prices.
Where You Should Buy Physical Gold
In many countries, you can buy gold directly from the bank. You can also buy gold coins or bars online after you find a credible trader.
Although there have been times when the gold market was bullish and thousands of investors made a lot of money, investing in gold should not be seen as a short-term investment, because it is not, it has never been and it will never be. For the long-term investor, it is always a good time to invest in gold.
However, the investor still has to do his homework before he goes ahead and places his money into gold. Gold is on a long-term upward trend, and there will be times when a correction will be knocking on its door. Therefore, there is no need to panic if the price dips 5% in one month.
Buying gold at uncertain times is also a must. Investors should always be on the lookout for major news and announcements from financial institutions such as banks, the government, Wall Street, etc. Negative economic and political messages including debt, currency, and unemployment, create unrest, particularly in the world’s largest economies such as the US, China, and the Eurozone.
How to Invest in Gold
In the old days, there was only one way to invest in gold and that was only by acquiring gold itself, mainly in the form of jewelry and gold coins. Over the centuries there have been many changes and nowadays, the investor faces a very difficult task, due to the fact that there are many options available. On this page, I intend to inform the investor about the ways he, or she, can actually invest in safe-haven gold.
Direct ownership, in my opinion, is the best way to invest in gold. Why? There is nothing like pure gold in your hands, it is certainly better than money. Its value cannot be changed or controlled by governments and that is the reason for governments to go off the gold standard.
Gold can be used as currency no matter where you are, and the owner could have a great advantage during hard times. The only disadvantage to owning gold is that it tends to tray with a wide spread between the bid and asked prices, so don’t expect to turn a fast profit. You should not view gold as a speculative asset, but as a defensive asset for holding value. Since your dollars, euros, pounds, etc. are going to fall in value, gold is the best place to preserve value.
Bear in mind If you live in a European Union country gold is V.A.T. or G.S.T. exempted, this is a great incentive. For any other taxation issues, my advice is to have a word with your tax adviser as taxation policies vary from country to country, or even state to state.
Should I Invest in Gold or Silver?
Many investors wonder what is better to own, gold or silver, in my opinion, the best is to own both. Although gold is the ultimate insurance and protection against uncertain economic times, silver is a more speculative investment. As a result, silver can offer substantial profits.
Investing in Gold Bullion Bars?
A gold bar is a quantity of fine metallic gold, that is manufactured by a bar producer meeting the exact standard conditions, such as labeling and record keeping.
Bars are the most traditional way of investing in gold. In many countries, they can be bought directly through banks. Bars are available in various sizes, 12kgr, 1kgr, 100gr, 50gr, 10gr, 1gr, etc.
The standard gold bar held as gold reserves and traded as such by the central banks, is the 400-troy-ounce. (12.400 or 438,9 ounces). The 1000gr bar or the kilobar is the most popular bar among investors, and it is used extensively for trading and investment. The premium of these bars when traded, is very low over the spot value of the gold, making it ideal for small transfers between banks and traders.
Nevertheless, bar purity must be 99.5% (24 karats) at least, whereas there is a number of manufacturers producing bars at 99.9% purity.(24 karats too)
Investing in Gold Bullion Coins?
Bullion coins are coins made out of precious metals with one purpose only, that of investment or store of value, rather than used in day-to-day commerce. Many countries have their own bullion coins such as the British sovereign, produced by the British, the American Eagle series of coins available by the U.S. Mint, and many others.
Bullion coins are produced in many weights. They are usually in fractions of one troy ounce, but some bullion coins are produced in very limited numbers in kilograms or more. Bullion coins are usually available in gold and silver, with a couple of exemptions, (the Krugerrand, and the Swiss Vreneli) which can only be found in gold.
Bullion coins are priced according to their fine weight plus a small premium, based on supply and demand, as opposed to numismatic gold coins, which are priced mainly by supply and demand, based on rarity and condition.
Bullion coins sell, for a premium over the market price of the metal on the commodities exchanges. This premium is due to the underlying demand for bullion coins, their small size, and the costs of manufacture. In addition, the amount of bullion varies depending on the coin’s type, weight, and precious metal.
Gold IRA Investment
A gold IRA investment is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical bullion coins or bars.
There are four precious metals allowed to be held in an individual retirement account, and these are gold,silver,platinum, and palladium. Certain criteria are required for precious metals, in order to qualify as precious metals that can be held in an IRA. The precious metals coins and bars must meet IRS fitness standards and must be held by the IRA trustee, rather than the IRA owner. Gold must be stored in an IRS approved depository. In particular, investors do not have to stash gold bars or coins in their homes or closets.
Should I include gold in my retirement plan?
Gold is the type of investment that can protect when times are hard and at the same time will also offer significant gains to your nest egg. Back in 2001, an ounce of gold cost $271,00. Ten years later it reached $1896,00, an increase of almost 700%. During that time, banks and currencies collapsed, the real estate market collapsed, but the price of gold didn’t. In particular, gold fed from these calamities, it was the rediscovered idol, in the time when everything else collapsed, from mortgages, stocks, credit default swaps, and derivative products, all was too complicated to even understand.
As you can see, a standard IRA, an IRA invested totally in stocks bonds and other funds are actually putting your hard-earned money at risk. You are relying on the government, weak currencies, economies, and large corporations. Gold and silver can actually safeguard your investment.
Since the 2008 financial crisis, gold IRAs have become very popular. Record gold sales, combined with the appearance of many more, that simplify the transaction, have made investing in an IRA a one-shop stop. The result is robust IRA growth.
Nowadays, it is absolutely necessary for the investor to invest a portion of his/her savings in gold, as the dollar is still weak, there is geopolitical uncertainty, the country’s (US) trade deficit is out of control, and the potential inflationary impact of the Federal Reserve’s, stimulus programs.
How does it Work?
It works the same way as a regular IRA account, however, instead of holding paper assets, it holds physical bullion coins or bars.
Finding a reliable IRA broker.
It is imperative for the investor to find a reliable IRA broker. Choosing the right firm can mean success or failure as a gold owner. Choose the right firm and it will help you protect your assets from economic uncertainties. Choose the wrong firm, and your funds can be directed to an assortment of bullion-related investments, investments that are not truly asset preservation vehicles. For example, gold stocks, gold exchanges traded funds, and mint state and proof coins graded by independent services put the buyer at a disadvantage either by selling for high mark-ups or by putting the whole investment at systemic high risk.
Check out the comments regarding the firm, especially the complaints, and see how these complaints were handled. If there is a long list of complaints, then this is a sign to worry about. Also, check the number of years the company operates, you want ten years of solid record. Finally most important is to choose a firm with a commitment to keeping you informed. Keeping you informed now and in the future.
In the past, the whole process was complicated and was mainly done by phone. Today, with the advancement of technology and many more, you can choose a gold broker online and automatically, be assigned an IRS-approved custodian. A custodian’s duty is to oversee the whole operation, from application to funding/rollover, purchase, and vaulting.
Remember gold IRAs require special expertise to value. Although gold has the potential for high returns it is easy to be blinded by its glitter. If you are considering a gold IRA my advice to you will be to consult a financial adviser. He will determine how gold would fit with the overall goals of your portfolio.
Gold options and futures currently trade on various exchanges around the world and over the counter directly in the private market. They are suited to the sophisticated and experienced, who can speculate on price movements in either direction. The risk is high, and so are the profits and losses too.
The companies that produce the gold themselves as shares in gold mining companies. If the gold prices rise, so will the profits of the gold mining companies and as a result, the share price will also rise. However, there are certain risks here an investor has to take into account. Mines are commercial enterprises, with problems such as flooding, subsidence, structural failure, mismanagement, negative publicity, nationalization, theft, and corruption. Such factors can lower the share value of mining companies.
Gold Exchanges Traded Funds (E.T.F.s) are a very interesting way to invest in gold. An E.T.F. is a type of mutual fund, that trades on the stock exchange like an ordinary stock. The E.T.F.’s exact portfolio is fixed in advance and does not change, therefore the E.T.F. holds gold bullion as its own asset. E.T.F. offers a practical way to invest and hold gold.
Choosing the Right Gold Broker
Choosing the right gold broker is always a difficult decision. It doesn’t matter where an investor is prepared to invest, it is absolutely necessary to research and make sure his/her hard-earned money doesn’t go to waste. In order to ensure the above and at the same time maximum earnings, it is important for you to read this page.
Check out the comments regarding the firm, especially the complaints, and see how these complaints were handled. If there is a long list of complaints, then this is a sign to worry about. Also, check the number of years the company operates, you want ten years of solid record. Finally most important is to choose a firm with a commitment to keeping you informed. Keeping you informed now and in the future. If a salesperson gives you a short shift or hits you with a high sales pitch, then this is bad news.
The LBMA, London Bullion Market Association is the competent authority for the world bullion market, and it is overseen by the bank of England. It is imperative for the bullion to be produced by an LBMA-approved refinery. This way, the gold bullion coins or bars are meeting the standards set by the LBMA. In a few words, you are getting what you’ve paid for.
Direct Storage Outside the Banking System
Storage of bullion should be outside the banking system, this way the possibility of confiscation due to bank bankruptcy (bail-ins), or government confiscation is eliminated. Storage should be direct to the client’s name with no intermediates. This way there is no risk of the investor losing his/her investment, in case the broker goes bankrupt. The investor should be provided with a storage certificate by the independent storage company.
Buyback, Shipping, and Pickup Services
The gold firm should be able to provide the client with several important services that include: a buyback service a pickup service, and a shipping service as many clients would prefer their gold kept at home. At the same time, it is important for the dealer to be accessible to its client’s questions and queries, and give answers and solutions promptly.
Gold Bars or Gold Coins?
Before we examine what is better investment gold coins or gold bars, we must remember one thing. Any type of precious metal bullion is a better investment than paper currency.
Gold bars are suited to the serious, large-scale investor who wants a simple and
efficient way to invest in gold. The larger bars are always available at the lowest premiums over their intrinsic gold value, smaller bars tend to cost substantially more.
On the other side, it is difficult to sell a 1-kilo gold bar as most investors are not familiar with gold bars, and you will need to find a larger dealer, as finding a private buyer is going to be a difficult task.
Gold coins is the type of investment suited to the smaller investor. I personally prefer to invest in an ounce gold bullion coin, rather than an ounce gold bullion bar, as coins are massively produced and can be purchased at very competitive prices, compared to gold bullion bars.
The quality of gold coins is also guaranteed by the government, rather than a private
refinery. At the same time, coins are very easy to resell. Many investors, only examine the premium price, (the percentage over and above the current gold value at which an item trades) when they buy gold, but do not realize that coins can have a premium at the time of sale, which is can be beneficial to the seller. A premium price can vary from 1% to 10% or even more.
Older coins, such as the British sovereign carry a higher premium, rather than a modern coin such as the Krugerrand. At the same time a large-scale investor, who will actually invest in a large number of coins will actually pay a small premium.
My recommendation for the large-scale investor is to invest in gold bullion bars, as
bullion bars are the most efficient way to invest in gold. Bare in mind, I am not talking about a 1-ounce gold investment but I am talking about a 1-kilo investment.
A smaller investor is better off investing in gold bullion coins, preferably older coins such as the British sovereign, as the sovereign carries a high premium. In addition, coins are easy to resell.
Storing your Precious Metals
Storing gold could be a headache for the novice investor. What are the options and which option is the best? Basically, there are three options to store gold.
1-At home (in a safe or well hidden) 2 -In a bank’s safe deposit box 3-In a private storage firm
There are pros and cons to all options, but home storage or a private vault is the best option. Before we analyze those two options, I will have to explain why the bank’s safe deposit box will have to be excluded.
Storing Gold in a Bank’s Safe Deposit Box
Banks do offer an excellent level of security and peace of mind, but storage fees can be high, as they can range from $100 to $500 annually. Accessibility is another issue, as the investor can only have access to his gold, during business hours, which coincide with most people’s work schedules. Also, investors will not be able to access their gold during public holidays. These restrictions can cause large problems in the event of a national emergency.
A gold investor puts his money into gold, to protect himself from the risks associated with the fragility of our financial system. To buy gold and then store it in a bank safe deposit box, will be at least inconsistent because, storage of bullion in a bank’s safe deposit box runs the risk of confiscation, due to bank bankruptcy (bail-ins), or the risk of government confiscation.
If you hold gold in a bank, and the bank goes bankrupt as was the case in Argentina, then you lose the advantage of immediate access to a means of payment for your basic needs in times of trouble, when access to traditional means of payment like cash or bank cards is hampered. The risk of bank failure is real and it was repeated a few years later in Cyprus.
There is also the risk of government confiscation and it actually took place in the US in 1933 with President Roosevelt’s executive order 6102. The risk of government confiscation is small but is still there. Confiscation could happen if there is panic in the banking system or just before a new monetary system is announced.
Storing Gold at Home
Storing gold at home is the least expensive for storing precious metals, as customers benefit from the absence of storage fees. This form of storage is ideal for customers with small to medium-size collections of precious metals. All you have to do is find a secure spot in your house or property and store your valuables.
Before you do anything you must know that keeping gold at home has also a few drawbacks. Investing in precious metals is a completely private decision, the fewer people who know about it the less of a potential target you will be. So don’t tell anyone you keep gold at home, and at the same time make sure it is well hidden.
If thieves find it or if you lose it, it’s gone and it’s gone for good. You see gold bullion coins are easy to sell, as they are bought and sold by individuals, coin dealers, banks, and commercial dealers without a question.
Attention, with storing gold bars at home, as in order for the dealer to accept them, you might need to get your gold bars refined, so the dealer can verify the gold content, which costs money and takes time.
Is buying a safe solution? No, I do not think so. An upright safe is always visible and it does send the wrong message. A hidden safe is also not a good idea either, you see a burglar can find it and if he cannot open it he will come back with his friends. In addition, a punk with a pistol can easily convince you to open the safe.
A sunken floor safe could be a better idea, a safe you can install on the floor of your closet or garage. These safes are generally small but invincible, as the door to them is actually below the level of your floor, often hidden under the carpet.
In my opinion, the best place to hide valuables is up in the attic. A few pounds of gold can easily be stashed in the far corner of your attic and there is no chance that any intruder, is going to go up there and search.
Private Storage Firm
On larger quantities of gold, I recommend the use of a private storage firm (precious metal depository). Precious metal depositories offer top-level security, as they are highly guarded establishments that are under constant surveillance, with all activities inside the depositories monitored and recorded.
Some precious metal depositories offer two forms of storage, segregated and communal. Segregated storage, allows customers to keep their valuables in an individual storage compartment, preserved for private use. In comparison, communal storage, allows customers to keep their valuables in a shared storage area along with other people’s bullion. Both types of storage offer excellent security. Unfortunately, not all depositories offer both forms of storage, so it is important to verify the information in advance before committing to a particular depository.
Furthermore, many depositories offer further means of protection through their accounting-auditing and insurance policies. If after an inventory inspection, an amount of gold is missing, customers should remain confident it will be covered by the insurance policies.
Storing gold should not be a headache, after all the purpose of buying gold is to ensure peace of mind and financial stability. Choose the type of storage you feel most comfortable with and that should be enough.
I hope in this post I provided enough information for the investor who is actually considering investing in precious metals. I wanted not to keep it short and provide only the necessary information. If you have any questions please leave a message, I will be more than happy to answer back.
Even though gold’s price is just about to rise to new heights, silver has been trading sideways since the beginning of the year. Will silver’s price start catching up to the yellow metal?
Silver’s performance has always been related to gold’s performance. In order to understand the prospects of silver, first we need to see gold’s prospects for the year. A breakout in gold could mean the substantial rise for silver’s price. It has happened before it may well happen again.
Will the gold rally continue?
Gold performed well in 2016, 2017 and is expected to do the same in 2018. I do not expect gold to get over the $1500 mark this year even though there has been many reports for gold reaching the $10000 mark by 2020. I do not share those views but I do believe the fundamentals are there for gold to continue to rise over the next 5 years. Yes gold behaves bullish but at the end of the day, the gains will be 8% to 15% per year. Over a five-year period I do not see any other investments that will provide steady returns to that level and silver is bound to follow gold.
The fact of the matter is that the primary investment assets, stocks, bonds and real estate, are all in bubbles. As if this is not enough, the new trend, cryptocurrencies are also in bubbles. Most analysts including me believe, most bubbles are likely to explode this year.
At the same time the possibility of a trade war between the US and China is there alive and real. North Korea is adamant to continue with its nuclear project, the Middle East is burning and the UK is negotiating the terms of Brexit.
Global uncertainty and market uncertainty are both looming. Gold’s price is correlated to most major asset classes. It is more likely to rise when stock markets crash. We all know gold responds when uncertainty and fear sneak back into the economy and markets. The next event that causes financial instability could actually be the spark that kick-starts the next surge.
Will silver follow gold?
Gold to silver ratio is over 80:1 right now when for the whole of the 20th century the average silver to gold ratio 47:1. Silver is already below its 2016 high and is currently battling its 200 day moving average. That’s fine with me. Silver always lags and under performs gold until gold gains momentum or breaks key resistance. A major breakout in gold this year could have a major effect in silver’s price.
If and when silver breaks its 2017 highs, we can declare its bear market over (in terms of time). Silver has often rebounded after long and bad bear markets.
Is silver undervalued?
In my opinion silver is highly undervalued and thus, silver could over perform gold this year. I expect silver to gain 30 to 50 cents as soon as the gold rally starts. And if silver gains momentum it could actually reach the $20 mark by the end of the year.
An investor’s duty is to be alert at all times and to be prepared for shifts like that one. This way we can protect and preserve hard-earned family wealth.