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Gold Prices: Five Reasons Gold Is Set To Explode

Gold prices are retracing from highs today after touching their highest level in more than seven years. The gold price hit a peak of $1,779 yesterday as investors started to diversify their bets. Five key factors are likely to push gold prices higher in the coming days.

Lets dive deeper.

Coronavirus: Second Wave

Investors are largely risk-averse due to the threats of coronavirus second wave. New cases have started to surge. It was expected that there would be some spike in coronavirus cases as economies began to re-open. But what wasn’t priced in was that the situation would start to get out of control just as it did in Texas. New cases have soared 4.5%, and hospitals are close to their full capacity. 

Australia has reported its largest one-day spike in coronavirus cases in nearly two months, and this has raised alarm bells of a possible second wave. 

The UK has announced the re-opening of its pubs and restaurants, and travel restrictions are likely to be eased off from next month. Remember, the UK was one of the worst countries in terms of dealing with the Covid-19 crisis, and it has the third-largest casualty rate due to coronavirus. If appropriate measures are not taken and respected, we will probably see another coronavirus wave coming to the UK. 

Of course, positive news on the Coronavirus vaccine or success in calming down the protests, and protecting the global economy from damage can keep the gold prices in check, and this may halt the sharp rise that I am expecting. 

Possible New Tariffs On Europe 

Donald Trump, the man who is known for escalating trade tensions, anchored trade tensions once again yesterday. Trump is weighing new tariffs on $3.1 billion of exports from the UK, Spain, France, and Germany. If tensions continue to rise on this issue and Trump doesn’t back off from his stance—which could be one of his tactics to show himself strong ahead of the US elections—investors are likely to steer away from riskier assets. 

However, if for some reason, the trade tariffs are avoided, or investors do not see this a potential threat to global economic growth, gold bulls may not succeed in pushing the gold price higher. 

China-US Trade War

China is not a country that is going to sit on its hand and let the Trump administration to bully it. The Phase-one US-China trade deal has become immensely fragile due to coronavirus. China has reduced its Agriculture and poultry from the US.  There has been confusion about the US-China trade deal, and Trump has also talked about “decoupling” from China. In addition to this, China sees the US stance on Hong Kong as interference in its domestic affairs. 

Traders do not like the US picking a fight with the second biggest economy of the world, and we have seen the evidence of this last year that jolted the US stock market. 

If, for some reason, we see the relationship between the US and China getting back on track with no further threats to the US-China trade deal, we may not see a massive surge in the gold price. 

The US Unemployment Claims 

The weekly jobless claims data continue to paint a very dull picture for the US labour market. Sadly, with the regional shutdown of stores in the US, it seems the minor recovery we have seen so far could be under a significant threat as well. In simple terms, the unemployment claims numbers are already ugly, and they are likely to become even worse because companies like Apple AAPL have begun the process of re-closing of their stores in US coronavirus hotspots. 

The job market is the most important for the Federal Reserve, and Fed monetary policy is highly reflective of this. The Fed is determined to keep the interest rate lower for longer, and they are unlikely to increase the interest rates anytime soon. Another major central bank, the Bank of England, has provoked a new idea concerning interest rates, and will not increase the interest rates while the government balance sheet is mammoth. Andrew Bailey, the governor of the Bank of England, has talked about this, and, likely, the Fed will also pay attention to this notion. 

Earnings season 

The third earnings quarter is currently wrapping up. At the beginning of this quarter, there was some hope for improvement as the economies began to re-open. But the emergence of the second corona wave is likely to trigger another cautionary note from US companies, and investors are not going to like it. The US stock market rally that we have seen after the Covid-19 stock market crash could lose its momentum. Again, the risk-off mode is likely to spur interest in gold. 

However, if the US corporates start to focus more on the positive side and for some miraculous reason their cash burn ratio goes down, we may not see much movement in the gold prices.

OriginalNaeem Aslam

How to buy, sell and invest in gold

Learn more about gold and how you can start investing today.

Global stocks crashed in 2020 as a result of the unexpected coronavirus pandemic, and the historic volatility has led investors all over the world to seek safe places to put their money.

For centuries, gold has been a popular store of wealth. In turbulent times, you might notice people talking about gold as an investment. After the initial panic subsides, you often see the price of gold rising while other stocks are falling.

If you’re interested in investing in gold, there are three main routes to do so:

What’s in this guide?

  1. Buy gold mining stocks
  2. Gold ETFs
  3. Buy solid gold
  4. Compare providers for access to gold ETFs and more
  5. How much is gold worth now?
  6. Why is gold a “safe haven”?
  7. Bottom line

Buy gold mining stocks

One option is to invest in gold mining firms. You can find some of the largest firms listed on the S&P 500, including Newmont Mining (NEM) and Freeport McMoRan (FCX). Many other miners — the smaller firms are call junior miners — are also widely available through normal brokerage accounts. Through investing in mining stocks, you’re directly linking your capital to the success of these companies, and the changing value and price of gold.

While heavily correlated, the performance of gold mining stocks will not perfectly match the price of gold. Unlike the resource itself, companies are subject to a number of external factors such as employees going on strike, geo-political implications for the area, natural disasters and business decisions. In addition, because the cost of mining is often high, there’s usually a price point where increases in the gold price can influence the profit margins for gold miners exponentially rather than linearly. For instance, if the cost of mining is $1,000 per ounce, then a 13% increase in the price of gold from $1,150 to $1,300 actually represents a 100% jump in profits for the gold miner.

Pros

  • You can pick and choose a range of stocks individually in your brokerage account, and cash out when you want.

Cons

  • Like any investment, mining stocks are not immune to risk.

Gold ETFs

ETFs are another option worth considering. ETFs give access to a whole load of assets without having to put all of your money into one or two firms.

Simply, ETFs allow investors to minimize risk while taking advantage of the performance and general popularity of a particular sector — in this case, gold.

There are several gold-based ETFs to choose from, covering a whole host of different companies within the industry. There are mining companies, exploration companies, as well as the actual asset itself. Gold ETFs are a pretty good choice for those who are new to investing, as well as those looking to secure their portfolio.

Pros

  • ETFs allow for instant diversification across the whole gold industry, at a low price.

Cons

  • By placing your money in an ETF, you are trusting your gold portfolio to a preselected list of companies, so you naturally relinquish some control over the split of assets.

Buy solid gold

For some people, part of the appeal of gold is being able to hold it. If you’re one of those people, then the good news is that buying solid gold has never been easier. While you can buy gold directly from the US Mint, most investors do business with a local dealer or reputable online broker.

Gold is available in a variety of coins, ingots and bars as small as half an ounce and as large as 400 ounces. While the US Mint has produced numerous collectible gold coins in different themes, the standard gold bullion coin is called the Gold American Eagle. Other common gold coins include Canada’s Gold Maple Leaf, South Africa’s Gold Krugerrand, China’s Gold Panda and Australia’s Gold Kangaroo.

Pros

  • You have a tangible asset which is yours to hold, store or pass on to someone else.

Cons

  • You will need to factor in the cost of secure storage and insurance if you plan to build up a stockpile of gold. These costs will stack up over time, even if the value of your gold decreases.

Gold bars

Stack of gold bars Image: Getty

Gold bars generally range in size from 1/10 of an ounce to 1 kg (2.2 pounds), but there are also bars up to 500 ounces available. However, remember that precious metals use troy ounces and one troy ounce equals 31.1 grams.

There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mold, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.

Gold coins

Stacks of gold coins Image: Getty

Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10 of an ounce and 1 ounce of pure gold.

These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made.

How much is gold worth now?

How to safely store gold

Once you’ve purchased your gold, you’ll also need to find a safe place to store it. There are several options to consider, including the following:

  • Bullion dealers. Many gold dealers will also offer a storage service where you can keep your gold bars or coins for a fee, so ask about the storage options available when you make your purchase.
  • Safety deposit boxes. You can rent a safety deposit box at a bank to securely store your gold bullion.
  • Secure vault storage. For high-level security, you may want to research vault storage companies near you and the storage options they offer.
  • At home. You can also choose to store your gold at home. This obviously may not be as secure as some other options, so you may want to get a home safe installed. You’ll also need to update your homeowner’s insurance to make sure your precious metal is covered by your policy.

Why is gold a “safe haven”?

There are many reasons people view gold a safe haven for investors. For example:

  • Gold is a physical asset
  • It is not easily created or destroyed
  • It does not change (it is resistant to oxidation; gold looks the same hundreds of years from now)
  • It has cultural and historical value — gold predates modern currency and has always been seen as beautiful and special
  • Governments have turned to gold in times of financial crisis, which in itself adds to gold’s stability

What is a safe haven?

A safe haven investment is typically stable in times of market volatility. A safe haven is also useful for investors looking to diversify their portfolio, decreasing exposure to riskier assets or investments.

Bottom line

If you’re searching for ways to protect your wealth or diversify your investment portfolio, gold may be a practical solution.

But first do your research to make sure you know the costs of storage and security, as well as understand that returns may not match those provided by other investments. This will help you make an informed decision about whether buying gold is the right choice for you.

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Original – Charlie Barton