Saturday, 19 January 2019

Invest in gold a good idea

Gold Bar Is What ?

A gold bar, also called bullion or a gold ingot, is a quantity of refined metallic gold of any shape that is made by a bar producer meeting standard conditions of manufacture, labeling, and record keeping. Larger gold bars that are produced by pouring the molten metal into molds are called ingots. 

Smaller bars may be manufactured by minting or stamping from appropriately rolled gold sheets. The standard gold bar held as gold reserves by central banks and traded among bullion dealers in the 400-troy-ounce (12.4 kg or 438.9 ounces) Good Delivery gold bar. The kilobar, which is 1000 grams in mass (32.5 troy ounces), is the bar that is more manageable and is used extensively for trading and investment. The premium on these bars when traded is very low over the spot value of the gold, making it ideal for small transfers between banks and traders. Most kilobars are flat, although some investors, particularly in Europe, prefer the brick shape. Asian markets differ in that they prefer gram gold bars as opposed to Troy ounce measurements. Popular sizes in the Asian region include 10 grams, 100 grams and 1,000 gram bars. 

Gold Bar Types ?

Based upon how they are manufactured, gold bars are categorised as having been cast or minted, with both differing in their appearance and price. Cast bars are created in a similar method to that of ingots, whereby molten gold is poured into a bar-shaped mold and left to solidify. This process often leads to malformed bars with uneven surfaces which, although imperfect, make each bar unique and easier to identify. Cast bars are also cheaper than minted bars, because they are quicker to produce and requires less handling.

Minted bars are made from gold blanks that have been cut to a required dimension from a flat piece of gold. These are identified by having smooth and even surfaces.

Why Gold Bar Interesting ?

Everyday, gold trades in dozens of markets around the world - New York, Chicago, Sydney, Tokyo, Hong Kong, Calcutta, Turkey, France, Kuala Lumpur, and so forth. Each market reacts to news as it happens, and gold is always trading, wherever the sun shines as the earth turns. The prices are 'set', and constantly 're-set', by the ever-changing supply and demand factors, input by thousands of investors, central banks, governments, miners, jewelers, dealers, and others who trade in gold almost daily. The gold market amounts to billions of dollars every day, and no one can 'set' the price. It changes constantly, due to hundreds of factors, ranging from the opening of a new gold mine, to the changes in interest rates of one currency or another. Of all the commodity markets, the gold market is probably the largest and most free market in the world. 

Each year, approximately 2500 tons of gold were mined throughout the world. South Africa leads the world in gold mining, and the U.S., Russia, Canada, and Australia are also major producers. Gold is distributed widely over the earth, and gold mining is pursued in most countries with some success.

As gold exploration and extraction techniques become more technologically advanced, the cost of getting gold out of the ground tends to go down. For instance, there are some new mines that have costs of production well below $200 per ounce of gold. On the other hand, the fact that gold has been sought all over the wold for thousands of years means that the easy pickings have already been discovered. There are no new California -  or South Africa- size discoveries to be made. New mines are fewer and farther between, and the promising ones often start out strong and fade out fast when the actual amount of extractable gold doesn't measure up to expectations.

Does Is Still Pay To Invest In Gold ? 

From gold exchange-traded funds (ETFs) to gold stocks and buying physical gold, investors now have several different options when it comes to investing in the royal metal. But what exactly is the purpose of gold? And why should investors even bother investing in the gold market? Indeed, these two questions have divided gold investors for the last several decades. One school of thought argues that gold is simply a barbaric relic that no longer holds the monetary qualities of the past. In a modern economic environment, where paper currency is the money of choice, gold's only benefit is the fact that is a material that is used in jewelry.

On the other end of the spectrum is a school of thought that asserts gold is an asset with various intrinsic qualities that make it unique and necessary for investors to hold in their portfolios. In this article, we will focus on the purpose of gold in the modern era, why it still belongs in investors' portfolios and the different ways to invest in the gold market.

Gold Preserves Wealth ?

The reasons for gold's importance in the modern economy centers on the fact that it has successfully preserved wealth throughout thousands of generations. The same, however, cannot be said about paper-denominated currencies. To put things into perspective, consider the following example:

Gold, Cash and Inflation
In the early 1970s, one ounce of gold equaled $35. Let's say that at that time, you had a choice of either holding an ounce of gold or simply keeping the $35. They would both buy you the same things, like a brand new business suit or fancy bicycle. However, if you had an ounce of gold today and converted it for today's prices, it would still be enough to buy a brand new suit, but the same cannot be said for the $35. In short, you would have lost a substantial amount of your wealth if you decided to hold the $35 as opposed to the one ounce of gold because the value of gold has increased, while the value of a dollar has been eroded by inflation.

Gold as a Safe Haven
Whether it is the tensions in the Middle East, Africa or elsewhere, it is becoming increasingly obvious that political and economic uncertainty is another reality of our modern economic environment. For this reason, investors typically look at gold as a safe haven during times of political and economic uncertainty. Why is this? Well, history is full of collapsing empires, political coups, and the collapse of currencies. During such times, investors who held gold were able to successfully protect their wealth and, in some cases, even use the commodity to escape from all of the turmoil. Consequently, whenever there are news events that hint at some type of global economic uncertainty, investors will often buy gold as a safe haven.

Gold as a Diversifying Investment
In general, gold is seen as a diversifying investment. It is clear that gold has historically served as an investment that can add a diversifying component to your portfolio, regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth. If your focus is simply diversification, gold is not correlated to stocks, bonds and real estate.

Gold as a Dividend-Paying Growth Asset
Gold stocks are typically more appealing to growth investors than to income investors. Gold stocks generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold is down. Increases in the price of gold are often magnified in gold stock prices. A relatively small increase in the price of gold can lead to significant gains in the best gold stocks and owners of gold stocks typically obtain a much higher return on investment (ROI) than owners of physical gold. 

Even those investors focused primarily on growth rather than steady income can benefit from choosing gold stocks that demonstrate historically strong dividend performance. Stocks that pay dividends tend to show higher gains when the sector is rising and fare better-on average, nearly twice as well-than non-dividend-paying stocks when the overall sector is in a downturn.

The mining sector, which includes companies that extract gold can experience high volatility. When evaluating the dividend performance of gold stocks, consider the company's performance over time in regard to dividends. Factors such as the company's history of paying dividends and the sustainability of its dividend payout ratio are two key elements to examine in the company's balance sheet and other financial statements. A company's ability to sustain healthy dividend payouts is greatly enhanced if it has consistently low debt levels and strong cash flows, and the historical trend of the company's performance shows steadily improving debt and cash flow figures. Since any company goes through growth and expansion cycles when it takes on more debt and has a lower cash on hand balance, it's imperative to analyze their long-term figures rather than a shorter financial picture time frame.

 Is Their a Bad Time to Invest in Gold ? 
In order to ascertain the investment merits of gold, let's check its performance against that of the S&P 500 for the past 10 years. Gold has underperformed compared to the S&P 500 in the 10-year period ending Jan. 26, 2018, with the The S&P GSCI index generating 3.27% compared to the The S&P 500, which has returned 10.365% over the same period.

That said, gold trounced the S&P 500 in the 10-year period from November 2002 to October 2012, with a total price appreciation of 441.5%, or 18.4% annually. The S&P 500, on the other hand, appreciated by 58% over this period.

The point here is that gold is not always a good investment. The best time to invest in almost any asset is when there is negative sentiment and the asset is inexpensive, providing substantial upside potential when it returns to favor, as indicated above.

The Bottom Line 
There are both advantages and disadvantages to every investment. If you are opposed to holding physical gold, buying shares in a gold mining company may be a safer alternative. If you believe gold could be a safe bet against inflation, investing in coins, bullion, or jewelry are paths that you can take to gold-based prosperity. Lastly, if your primary interest is in using leverage to profit from rising gold prices, the futures market might be your answer, but note that there is a fair amount of risk associated with any leverage-based holdings.


@ Jackie San