The recent global turmoil has reaffirmed the significance of gold as a safe and viable investment alternative. Other precious metals like platinum have not been able to take the position of gold, due to its high value and price volatility. In addition to retail investors, central banks, institutions, pension funds, etc. also take large positions in gold and drive its prices.
Why gold?
The one most apparent factor is that the lifetime returns on gold have been positive. Gold value is subject to short and medium-term fluctuations. However, it is not susceptible to the ups and downs of the economic and business cycles. This renders it a more stable investment in the long-term.
There is a negative correlation between the dollar rates and the gold prices. In the case of volatile market conditions or a weakening currency, people start replacing their dollar investments with gold. On one hand, this ensures that the investors do not lose their purchasing power by the day. On the other hand, the increased demand for gold pushes its prices up, augmenting the values of gold holdings. A weakening dollar is indicative of strengthening gold and vice-versa (this is mostly true, but not always).
Gold prices are not dependent upon the political or economic conditions. Events, like natural calamities, political disturbance, wartime etc. either do not affect gold value, or put an upward pressure on it. Therefore, in distress conditions gold acts as an effective hedging strategy to prevent the erosion in investor wealth.
Is gold always a ‘buy’?
Like stocks, investors often make a mistake of buying gold at a peak on the expectations of further price rise. Speculative gold trading has a large market and often the speculators accelerate the uptrend through futures and forwards. Such artificial price rally is liable to correction, sometimes leading to sudden plunge in value. Always remember the thumb rule to buy low and sell high.
Is jewelry worth the same as coin, bullion, or bars?
Jewelry yields lesser returns that the other forms due to the mixture of alloys, wear & tear, handling marks, and designing. In addition, gold jewelry is a costly acquisition because of its processing charges.
How to ensure right decisions?
Acquiring gold calls for more than intuition and tracking the mass sentiments. Guidance from expert precious metals consultants, newspapers, trade journals, investment websites, authentic investing forums, etc. are some of the reference points for making informed decisions.
Thursday, March 18, 2010
Monday, March 8, 2010
Commodity Trading: Gold and Silver
Since ancient times, precious metals have been the articles of ornamentation and monetary worth, alike. In the modern world, these metals find wide scale uses in jewelry-making, industrial use, investments, and speculation. Gold and silver are the most popular precious metals with universal acceptance. Their affordable prices, structural stability, ease of handling, liquidity, high returns on investments, and global acceptability, make them attractive trading propositions. The investment options in gold and silver include the stocks of mining companies, physical metal holdings, ETFs, and certificates. The current fiscal 2010 is expected to be a fruitful year from the point of view of gold and silver investing.
The US subprime crisis-led global recession destabilized the national economies and paper currencies worldwide. Some of the direct consequences of economic disequilibrium are the fluctuating forex rates accompanied by inflationary/deflationary conditions. This leads to volatile currencies and erosion in monetary holdings. Gold and silver are relatively insulated from such factors as their international prices are fixed daily based on demand and supply. When the currency value goes unpredictable, the investors start looking for alternatives and take exposure in gold investments.
Globally, sovereign gold holdings are important appeal drivers for gold. Traditionally, various nations maintained US Dollar reserves. Due to the consistent devaluation of Dollar over the last few years however, the central banks worldwide switched their sizable holdings to gold investments, pushing the already high demand even higher. As the demand rises, the prices follow, enhancing the worth of gold holdings further. Last December, the gold prices crossed $1,200 per ounce.
In the current scenario, the rationale for gold holdings is that the upside potential on the demand side remains high. Not only the retail investors, but also the fastest growing economies in the world, the BRIC (Brazil, Russia, India, and China) are planning to hedge their positions more aggressively than before. As far as the prices are concerned, the markets have already factored in a correction of almost 10% since December 2009. On the supply side, the position is weakening. The supply has slackened over the years. It is expected to level-off or even plunge in the coming years. Although, some newer reserves have come into light in certain underdeveloped nations, the cost of exploration remains a deterrent. The recycled gold supplies and new search ventures may not be able to keep up with the ever-growing demand in a couple of years. Therefore, the medium to long-term potential of gold is high.
The growing industrial demand will keep driving the prices of silver in future. Silver finds great use in electrical and electronics industry. In the retail segment, silver is used in manufacturing ornaments, decorative articles, foils, coins, bars, and bullion, to name some. The supply of silver is also limited and the demand is rising. With the economic recovery and increased manufacturing activity, the demand for silver is forecasted to rise.
The US subprime crisis-led global recession destabilized the national economies and paper currencies worldwide. Some of the direct consequences of economic disequilibrium are the fluctuating forex rates accompanied by inflationary/deflationary conditions. This leads to volatile currencies and erosion in monetary holdings. Gold and silver are relatively insulated from such factors as their international prices are fixed daily based on demand and supply. When the currency value goes unpredictable, the investors start looking for alternatives and take exposure in gold investments.
Globally, sovereign gold holdings are important appeal drivers for gold. Traditionally, various nations maintained US Dollar reserves. Due to the consistent devaluation of Dollar over the last few years however, the central banks worldwide switched their sizable holdings to gold investments, pushing the already high demand even higher. As the demand rises, the prices follow, enhancing the worth of gold holdings further. Last December, the gold prices crossed $1,200 per ounce.
In the current scenario, the rationale for gold holdings is that the upside potential on the demand side remains high. Not only the retail investors, but also the fastest growing economies in the world, the BRIC (Brazil, Russia, India, and China) are planning to hedge their positions more aggressively than before. As far as the prices are concerned, the markets have already factored in a correction of almost 10% since December 2009. On the supply side, the position is weakening. The supply has slackened over the years. It is expected to level-off or even plunge in the coming years. Although, some newer reserves have come into light in certain underdeveloped nations, the cost of exploration remains a deterrent. The recycled gold supplies and new search ventures may not be able to keep up with the ever-growing demand in a couple of years. Therefore, the medium to long-term potential of gold is high.
The growing industrial demand will keep driving the prices of silver in future. Silver finds great use in electrical and electronics industry. In the retail segment, silver is used in manufacturing ornaments, decorative articles, foils, coins, bars, and bullion, to name some. The supply of silver is also limited and the demand is rising. With the economic recovery and increased manufacturing activity, the demand for silver is forecasted to rise.
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