With this year’s gold value up over 26.5 percent by September 2020, the precious metal continues to seem like a safe haven to place value with public markets teetering on the edge of bubble collapses from being overheated by speculation. So many are wondering, is gold topped out again, or should gold buyers Auckland interests continue to consider adding to their positions and purchasing going into 2021?
There’s a lot of instability that argues for continuing to utilize a safe haven that gold provides. Volatility is only going to increase going into the fall of 2020, and economies typically slow down in the winter and start suffering losses or retraction. The traditional offset has been the holiday consumerism push, but this is year is anything but normal. Add in the fact that major governments are again considering more stimulus spending to boost their economies, COVID-19 continues to keep raging, and many who have realized pay cuts or lost their jobs are still struggling to make ends meet in different countries, and gold continues to keep looking strong.
The struggle that gold is having right now in breaking the current ceiling barrier has to do with profit-taking. Anyone who had a position in 2019 continues to realize a sizable gain of anywhere from 19 to 30 percent profit, and many have been selling, deflating the price of gold every time it makes a run in 2020 for the ceiling. Add to that the fact that equity markets, particularly in tech have been having extreme gains themselves, people have been torn between protecting their money and putting it back into the public market. That waffling pulls gold back. However, the fundamentals for an overall rise are in place and continuing to gain pressure systemically. Unemployment, loss of consumer revenue, rising debt levels, and unstable government leadership all lean towards more purchasing of gold over the next year with a very tight supply available and growing tighter.
The Ides of March
Gold buyers Auckland markets are not immune to losing value, and any investor who paid attention to what happened earlier in 2020 saw a good example of this. Like everything else, the initial shock of an economic panic sent gold hurtling down in value dramatically in the middle of March only to recover itself some 10 days later. This kind of dip was driven more by emotion and general financial anxiety than anything logical or rationale. Nonetheless, gold’s value was cut by almost 15 percent in that same short window, proving the precious metal could be caught up in global mob rushes like any other investment tool.
The above said, gold buyers Auckland activity joined with the rest of the world and treated the dip as a buying opportunity. Not only did gold restore itself in price value, it has been on a steady climb since March 2020, with an inflow in the tens of billions of dollars. That set the stage for a push to break the historical ceiling of gold, which finally happened in August 2020, and where we are today. Gold has pulled back a bit from its drive to the clouds, but based on the historical pattern the retraction is simply winding up for another push to go higher over the next few years.
Supply is Tight
After the summer started experts and market watchers paid close attention to the supply side of gold. The mining output has not changed much over the last few years, generally producing the same level from one year to the next. In fact, as Spring 2020 set in and social distancing became a big issue, some of the operations actually slowed down and output started to drop a bit.
At the same time available gold supply in all forms was being grabbed by individual and institution players from every direction. As government stimulus spending further weakened battered currencies by flooding markets with more cash, gold really started to stand out as a solid, disconnected asset to have that was not swayed easily by government monetary policy. That in turn drove more demand on a limited market.
Granted, a good number of folks in the last few months have seen the current window as a great opportunity to unload the gold they have kept on hand for years. Sellers have been richly rewards in all formats, from bullion gold to scrap gold jewellery being liquidated at continuously rising prices. That said, even though this push has moved new units of recycled gold back onto the market, it has been nowhere near enough to balance out the current demand. As a result, everyone from government mints to auction sellers on private sale sites like eBay have been swamped with offers and backlog orders.
Projections for gold levels and supply to return back to normal level anytime soon are completely off the grid. Mining is not going to suddenly boost and dump a huge amount of new supply on the market. Government central banks themselves are holding onto reserves to maintain needed stability if something goes haywire with the bubbles they are seeing in the public markets, and private buyers outnumber private sellers 10 to 1 at least. In short, the supply shortage of available gold for investing is going to continue to be pinched and will likely hurt even further to the beginning of 2021.
The Refinery Side of Things
Government-directed shutdown ran rampant across the production industry for gold in the earlier part of 2020. Many of the big gold refineries in Europe were simply shuttered, and that loss of inventory replacement has now been hitting the end retailers hard, stripping them of the baseline they were able to expect every month. In addition, what is available has become harder to move as the logistics side of the picture has also been hammered with increased restrictions and shutdowns of major transport channels for the same public health reasons.
The transport lockdown has become a major headache in multiple industries, and gold is caught up in that fiasco due to the nature of its weight as well the need for specialized courier treatment. Where inventory is geographically displaced from buying markets, it sits in vaults and safes or gets distributed in small amounts via package couriers, far too small in activity to meet the demand or relocate what is available efficiently. As a result, the logistics failure resulting from COVID-19 has also contributed heavily to the price push in gold from a basic supply versus demand perspective.
Gold scrap refineries can’t get their hands on enough material either. Regularly advertising to private individuals to liquidate their various jewellery and sold gold items, many are finding the need to be creative in marketing outreach and educating entire new markets on how to liquidate private gold. As soon as the scrap stock is received and smelted it’s practically shipping out the door to new buyers for additional holdings and bullion purchases.
Major bullion suppliers and refiners were not completely caught off guard. 2019 had already built up quite a demand for gold and many already had programs and efforts underway to push for more gold supply to meet demand. The problem that occurred was that the current demand in January 2020 never went away. It was simply added to five-fold but some experts’ estimates. That compounding effect caused prices to rocket on what was sellable and available to buy. And, of course, markup on a buying spree went hand-in-hand as well.
Institutional barriers also exist that no one was prepared to address. For example, Great Britain has a notable stock of gold bars in the 400 oz size on hand. Unfortunately, these don’t match the trading size of 100 oz and they are geographically in locations very far away from a sizable amount of the international market demand. So, in practice while the gold exists, some $420 billion USD worth or 8,263 tonnes, it’s unavailable from a practical level. The special 400 oz bars would have to be broken down and refined into 100 oz bars under controlled circumstances and then redistributed to get to market. That entire process in itself takes months under good conditions. Under current conditions the problem is even finding a working refinery to do the job.
Anticipating When to Buy Gold
The common temptation is to try to time the market, try to get into gold when it dips in price to hopefully make a “stellar” gain. In reality, most experts are arguing no such “good time” exists. Gold is on a standard, long-term trajectory upward and investors simply need to build in a position as they can for a buy-and-hold perspective. Yes, there is no argument that the entry point right now seems expensive relevant to where gold has been the last 10 years, but all indications are pointing that today’s price level may be bargain in a year from now if the current systemic factors continue in the gold market.
At a minimum, investment advisors regularly recommend building up to a portfolio position of 5 percent of one’s overall investment portfolio. However, with current instability, many have been pushing that recommendation higher, from a range of 5 to 15 percent of a personal portfolio. Even a few percentage points can restructure a portfolio considerably because of gold’s strength during uncertain times and its safe haven hedge against the direction of inflation and equity bearings.
Folks will, considering the above, find there are multiple ways into gold with upsides and downsides to each. When all is put into comparison objectively, however, bullion stands out to be stronger place to be in for a variety of reasons. Here’s why:
Physical investment – bought in the form of coins or gold bars, this is the most traditional way to buy and own gold in the most secure fashion. It doesn’t require a brokerage, and with government-issued bullion one knows exactly what is in hand based on weight and value. However, bullion always requires solid storage and security, which adds to its holding costs. Once an investor has a sizable position, lots of bullion becomes a bit of a challenge without a sizable vault or a storage services involved. Insurance adds a cost as well. Home fires are probably the number one way personal gold is destroyed if kept secure in the house.
Buying electronic holdings – purchased in the form of exchange-traded funds, ETFs, gold positions can be bought and sold similar to stocks. Doing so is so easy now, one can purchase a gold position in a matter of seconds through a basic online public market brokerage. However, what is bought is a paper commitment, not the gold itself. If the managing company of the ETF runs into problems, the position is worthless. The gold it was supposed to represent is not outright owned, only shares in a managing pool backed by that gold. That kind of risk for a large position may be untenable for many.
Gold company stocks – there is no gold involved at all with this choice. An investor is only buying the performance of a company that mines or refines gold for the market. The prospect for these companies looks potentially good, but many right now in 2020 are struggling just to get operating again due to staffing restrictions or shutdowns. So, if they can’t produce, their company stock is not likely to gain any profit anytime soon.
What to Expect Now
With gold in a temporary drawback from its highpoint at the beginning of August 2020, once again the precious metal provides its typical entry point for more positions to be added. Supply is not going to rise fast anytime soon, and the public markets just need a Halloween scare to spook everyone back into gold again, shooting the value up once again. The U.S. is already talking about implementing another fall stimulus spend right before its national election, and Europe will probably follow suit to balance the overall international market. Equity stocks typically fall in the winter, creating more pressure for value protection, only adding to the demand for gold by 2021.
Based on all the factors above, My Gold can help gold buyers of all types begin to create or add to a gold position if you believe that’s the next step for your investment portfolio. With a solid system in place for supply, inventory, and market price analysis, our team can put you on a solid footing for gold bullion investing as well as protection of your assets as you build your holdings. The demand for gold isn’t going away anytime soon. And with how integrated markets are today, everyone needs a safe haven for a safety net these days.