Gold is the most sought after commodity of all time. It has significant historical influance throughout the world and history. Two questions are often times asked is this a relevant commodity for modern day traders? Will the price continue to rise in the future? Historically this has been a great investment, but some people get into it for the wrong reason. Do you believe the marketing hype on the media or Alex Jones about a doomsday scenario? Sorry, this isn’t going to be one of those articles. My goal is to keep it about the macroeconomic facts and fundamentals
Where does the Demand Come From?
From a fundamental standpoint, the same reasons that this is a “precious metal” has been the same from the first transaction that ever took place in history, up until the modern day. All cultures have actually acknowledged the value of gold. As a result, it is still a demanded product in all nations throughout the world today. This includes countries such as China, India, and Japan.
What Makes Gold So Precious?
It is rare and uncommon and can’t be reproduced
Simplicity of Transportation when it is compared to other commodities
Never Goes Bad
It can be resized and reshaped
It still backs currencies and can be traded for goods
Why do People Still Purchase Gold?
The first reason is people think that gold is a safe haven currency in the times where thing are going bad. Like I said in the intro, people preach that there is some doomsday event that will happen.Then we will use this as a primary source of currency. It is relevant because it does drive demand and created a bubble in the market at one point. The last 5 to 6 years Gold has been the most hyped commodity on the market.
In some of the other countries that I have mentioned in the previous paragraph, gold is simply something that they collect as a tradition. From a demand standpoint, this is great because more of the precious metal will be in demanded. In China as an example, there are many families who collect gold items and pass them down as family heirlooms.
Is Gold Really a Safe Haven?
This is something that has been debated in many articles online. There are people who say when the United States dollar goes through a collapses that gold and silver would be the safe haven. I disagree because in the 1930’s something similar happened.
In the 1930’s people tried to hoard gold and the US government confiscated it
This was executive order 6102 signed by president Franklin D Roosevelt where people were forced to turn their gold currency in for US dollars. This was decreasing the demand for the US dollar and actually making the depression worse.
How Can You Participate In The Gold Market?
Since precious metals are a commodity, you can purchase gold through the futures market. I understand that the majority of people reading this won’t actually purchase futures. There are other ways you can participate in this market that are less risky.
ETF’s and Mutual Funds
This is my favorite option for participating in this market because you can trade or invest in an ETF in the gold sector as a whole. You don’t have the risks associated with buying futures. Like I said before futures are the type of trade where you can actually lose more than the initial purchase price. There are ETF’s that mirror the spot price of Gold Futures and inverse ETF’s if you want to go short. You can also use derivatives on these ETF’s such as put or call options if you are a speculator.
Buying the Physical Asset
Another option is to just buy gold as cliche as that sounds. There are vendors that sell bars and coins. This isn’t my favorite option but it is one that you can use in order to get some of this precious metal. This comes with the difficulty of storing it in a safe place and getting it shipped to you.
Investing in Gold Minors
Investing in minors (Common Stock) has some pros and cons. The spot price could increase but if the company is mismanaged then that doesn’t do you any good. Another thing is that these minors might not see the profits from the increase in price right away. My recommendation is to find a minor with proven management if you want to take this route.