Why Invest In Gold
“The fundamentals for gold are unassailable, the long technical picture is excellent and gold remains very inexpensive when compared to almost every other alternative (most particularly, bonds, treasury bills and bank deposits). With currency debasement assured and some form of hyperinflation probable, gold should trade at several multiples of the current price before this bull market reaches its end.” By John Embry, Chief Investment Strategist, Sprott Asset Management LP
Gold is a foundation asset within any long-term savings or investment portfolio. For centuries, particularly during times of financial stress and the resulting ‘flight to quality’, investors have sought to protect their capital in assets that offer safer stores of value. A potent wealth preserver, gold’s stability remains as compelling as ever for today’s investor. As one of the few financial assets that do not rely on an issuer’s promise to pay, gold offers refuge from widespread default risk. It offers investors insurance against extreme movements in the value of other asset classes.
A number of compelling reasons underpin the widespread renewal of interest in gold as an asset class:
Most investment portfolios primarily hold traditional financial assets such as stocks and bonds. Diversifying your portfolio can offer added protection against fluctuations in the value of any single asset or group of assets. Risk factors that may affect the price of gold are quite different in nature from those that affect other assets. Statistically, portfolios containing gold are generally more robust and less volatile than those that do not.
Market cycles come and go, but over the long term, gold retains its purchasing power. Gold’s value, in terms of the real goods and services that it can buy, has remained remarkably stable for centuries. In contrast, the purchasing power of many currencies has generally declined, due for the most part to the rising price of goods and services. Hence investors often rely on gold to counter the effects of inflation and currency fluctuations.
Gold is employed as a hedge against fluctuations in currencies, particularly the US dollar. If the world’s main trading currency appreciates, the dollar gold price generally falls. On the other hand, a fall in the dollar relative to the other major currencies produces a rise in the gold price. For this reason, gold has consistently proved to be one of the most effective assets in protecting against dollar weakness.
Gold is significantly less volatile than most commodities and many equity indices. It tends to behave more like a currency. Assets with low volatility help to reduce overall risk in your portfolio, adding a beneficial effect on expected returns. Gold also helps manage risk more effectively by protecting against infrequent or unlikely but negative events, often referred to as “tail risks”.
Supply and Demand
The price of gold tracks the shifting balance of supply and demand. Long lead times in gold mining mean production of gold is relatively inelastic, regardless of increases in demand. That’s why the rally in the price of gold since 2001 has not led to a meaningful increase in gold production levels.
Demand for gold has shown sustained growth recently, due at least in part to rising income levels in key markets. These supply and demand factors have laid the foundations for gold’s most positive outlook in more than a quarter of a century.
Only a Hard Asset Can Be Delivered to Your Home or Bank
Ninety percent of options expire worthless, and all futures and options contracts have time limits and charge fees every time you make a trade. Gold stocks are dependent upon the company’s management, its particular mine holdings and the whims of the stock market. Precious metals mutual funds are even less liquid and usually not able to be leveraged. ETFs move with the underlying futures price but like all the rest, are just paper assets and have limited leverage power. Precious metals, and particularly bullion, according to some of the world’s most prominent and respected economists, such as Nobel Laureate Robert Mundell, should be a part of everyone’s portfolio. At Capital Metals Trading, we strive everyday to provide our clients with outstanding service, helping clients from around the world feel more secure by diversifying their investment holdings.
For more information, please call or contact one of our Precious Metals Specialists today. They will be happy to take the time to answer all of your questions and explain to you the benefits of the Capital Metals Trading Investment Program.
According to U.S. Global Investors:
In February 2011, JPMorgan Chase & Co. said gold is at least as good an investment as triple-A rated Treasuries.
JPMorgan started allowing clients to use gold as collateral in some transactions where traditionally only Treasury bonds and stocks have been accepted.
On May 25, 2011, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) agreed to accept gold as collateral.
In March, Turkey passed a law allowing tier-1 status for gold held by banks. The one caveat is that gold can only represent 20% of the bank’s total tier-1 holdings.