Five Reasons and Six Ways to Invest in Gold"Gold is money. Everything else is credit.", said John Pierpont Morgan. When borrowers default, markets collapse and banks run into crisis, gold prices skyrocket. Gold is trading at a 12-month high on March 18th.
Gold has been valued for thousands of years. Gold has unique properties. It has been enchanting women and men since humans set foot on the planet.
Polycrisis. That aptly describes the current times. The US regional bank crisis haunts markets. Credit Suisse - the bank to the wealthiest was so frail that Swiss National Bank had to step in to provide liquidity backstop. Regulators worked over the weekend to broker an acquisition by UBS to prevent a banking crisis from spreading. Inflation is raging hot at levels unseen in 40+ years. Compounding Chair Powell's quagmire, the US Fed has been forced to switch from QT to QE by providing support to its regional banks from collapsing under crisis of confidence. Geo-politics remains tricky.
In times of crisis, investors seek flight to safety. Safest of all assets since civilisation began has been gold.
This educational piece provides an overview of (a) physical gold market dynamics, (b) largest holders of gold reserves, and (c) gold price behaviour against other asset classes. It also describes five primary reasons for investing in gold, contrasts six methods of doing so, and highlights the downsides of holding gold.
PHYSICAL GOLD DYNAMICS
Gold performs multiple functions. It is a currency to some. Store of wealth to others. It is an industrial metal used in consumer electronics. The rich love gold in clothing and food.
A bird's eye view of physical gold can be summarily described in three parts:
1. Consumers : Gold is used in consumer electronics due to its high conductivity and low corrosive properties. Gold used as industrial metal represents 6%-8% of total demand. Unsurprisingly, >50% of global gold demand is for jewellery. Jewellery is a multi-tasker. It meets aesthetic goals, serves as a status symbol while also being a form of investment.
2. Gold Reserves : Central banks hold gold as reserves. They are the most significant holders of gold. The haven nature of gold compels central banks to increase holdings during economic uncertainty, high inflation, or currency devaluation. Central Banks added >382 tonnes to their reserves in 2022.
3. Producers : Gold mining is a cyclical industry. Mining output has been in decline over the past decade as major gold producers shift to mining minerals and other metals like copper with the proliferation of lithium-ion batteries in EVs. Gold mining took a huge output hit during the pandemic and may not recover any time soon as capital expenditure into new gold mines is limited.
GOLD RESERVES - THE MOVERS AND SHAKERS
According to the World Gold Council, as of end 2022, central banks in Western European (11.8k tons) have the largest gold reserves followed by North Americans (8.1k tons), Central & Eastern Europeans (3.5k tons), and East Asians (3.4k tons).
Last year, central banks of Turkey, China, Egypt, Qatar, and Uzbekistan were the largest buyers of gold.
FIVE REASONS WHY GOLD SHOULD BE IN INVESTMENT PORTFOLIOS
Gold is a resilient store of wealth, provides meaningful portfolio diversification, has limited price volatility, extends benefits of hedge against inflation & currency debasement, and is limited in supply.
1. Resilient Store of Wealth
Gold outperforms equities during periods of economic instability. Due to its material properties and scarcity, it can even become more valuable during such periods as investors seek shelter in classic risk-off assets such as gold.
2. Portfolio Diversification
Gold can have both positive and negative correlation with other asset classes during different periods. This makes it an attractive addition to a diversified portfolio.
3. Limited Volatility
Due to its large market size and diverse supply origins, gold is less volatile than equities and other asset classes making it a safer asset class for investors.
4. Inflation Hedge
Gold is often seen as an inflation hedge. Which means that it can maintain its value or appreciate during periods of high inflation due to its scarcity and safety.
However, in some cases monetary policy changes like interest rate hikes may make gold a less attractive investment compared to treasury yields during inflationary periods.
5. Limited in supply
Gold is a finite resource, that too, one of the rarest precious metals in the world. Moreover, more than 200,000 tonnes of gold have already been dug up.
This represents more than half of the total reserves. The gold that is yet to be mined is much more difficult to extract economically.
Scarcity creates rarity, which in turn drives the value of the existing gold higher.
Many governments, banks, and people also use gold as a long-term investment, which means a huge portion of the gold supply is taken out of circulation, shrinking available supply even more.
SIX WAYS OF INVESTING IN GOLD
There are multiple ways of investing in gold. Six primary ones are:
1. Physical Gold : Gold can be bought and stored in the form of jewellery or gold bars. Costs of storage, insurance and making charges can be substantial and also inconvenient. Investing in physical gold is not optimal for reasons of poor convenience and higher transaction costs.
2. Gold ETF : Exposure to gold can also be acquired through buying exchange traded funds (ETF) backed by physical gold. There are multiple ETFs that track physical gold prices. The SPDR Gold Shares ETF (GLD) was the pioneer and began trading in 2004. It has an expense ratio of 0.4% and tracks gold bullion prices. GLD holds both physical gold bullion and cash.
GLD provides a liquid lower-cost method to buy and hold gold. Gold can be bought and sold during the trading day at market price. Investors must pay heed to taxation as gains from ETFs in some jurisdictions can be treated differently compared to other forms of gold.
3. Gold Futures : CME’s COMEX Gold futures is the world’s most liquid derivatives which enables capital efficient exposure to Gold. With round the clock liquidity, tight bid-ask spread and benefits of a cleared contract, investing through COMEX Gold futures is widely popular.
Each lot of COMEX Gold Futures provides exposure to 100 oz of Gold. Enabling affordable access to investors and to facilitate accurate granular hedging, CME also offers Micro Gold Futures. Each lot of Micro Gold contract provides exposure to 10 oz of Gold.
4. Gold Options : CME also offers options on Gold Futures. Gold options is a useful investing and hedging tool. Using options, investors can lock in unlimited upside potential of price moves while limiting the adverse impact of downside price moves.
5. Shares of Gold Producers : Gold mining is an international business. Gold is mined on every continent except Antarctica. Top gold miners include Newmont (USA), Barrick (Canada), Anglogold Ashanti (South Africa), Kinross (Canada), Gold Fields (South Africa), Newcrest (Australia), Agnica Eagle (Canada), Polyus (Russia), Polymetal (Russia), and Harmony (South Africa).
As is evident from the chart above, investing in gold miners for exposure to gold is a poor proxy as most of them have underperformed relative to gold prices. Furthermore, FX exposures must be hedged separately for some stocks which trade in emerging markets. In summary, securing gold exposure through miners is not optimal relative to other alternatives.
6. Gold CFDs : CFDs also known as contract for differences allows for synthetic access to the price of spot gold. These CFDs are OTC derivatives contracts which carry non-trivial counterparty risk with investors being exposed to the credit risk of the CFD provider.
The table below summarises the merits of various gold investment instruments across key investment attributes.
GOLD TOO HAS ITS DOWNSIDES
Gold is a non-yielding asset. Shares of profitable companies pay dividends. Holding debt earns interest. Real estate delivers rents. But gold provides zero yield.
For every problem, innovation in markets provides a solution. In a future paper, Mint Finance will demonstrate how gold can be transformed into a yield generating asset.
Rising interest rates are headwinds to gold. As rates on treasury, bonds and deposits rise, investors rotate their money out of gold and into yield generating assets.
Not only is gold non-yielding, but the returns also fade into insignificance relative to gains from innovation. In times of crisis, gold is a great hedge. However, while positioning portfolios for the long term, investors must astutely balance between safety versus growth.
GOLD RETURNS IN RELATION TO OTHER ASSET CLASSES
1. US Equities and Emerging Markets
Gold outperforms equities during periods of crisis. During equity bull runs, gold underperforms equities. Cumulatively, over the last 20 years, Gold has outperformed Dow Jones, S&P 500, and MSCI Emerging Markets. Only Nasdaq, which represents tech, innovation and growth has surpassed gold returns.
2. Treasuries with 2-Year and 10-Year Maturities
Unsurprisingly, when sovereign risks rise and treasury yields fall to zero, gold shines. Between two non-yielding assets, investors prefer to take shelter in gold as a preferred haven. However, when rates rise, investors rotate out of gold and into treasuries.
3. Crude Oil, Copper, and Silver
Over the last two decades, Gold has outperformed crude oil, copper, and silver.
4. Dollar Index, Bitcoin and Ethereum
While US Dollar and gold are both global reserves, gold has outperformed the Dollar Index which is the value of the USD against a basket of six international currencies.
However, relative to bitcoin and ethereum, gold pales into insignificance. Bitcoin is perceived as millennial gold and ethereum is the millennial oil. Both assets have obliterated gold in terms of price returns.
5. Major Currencies
Over the last 3 years, as markets emerged out of the pandemic, gold has outperformed all the major currencies. Yen, under the influence of Governor Kuroda’s liberal QE program, has depreciated 63% against gold.
Indian Rupee has deflated 47% while Euro and Sterling have shed 38% and 32% against gold.
The US Dollar, Chinese Renminbi, and Aussie Dollar have depreciated 31%, 29% and 20% against gold, respectively.
Key Takeaways
Gold is money. Everything else is credit. Gold glows in crisis. It is a knight in shining armour for investors. Gold is the only asset which exhibits negative correlation.
These are times of polycrisis. As investors seek flight to safety from banks even, gold is the safest among the few remaining alternatives.
Gold is a resilient store of wealth, offers durable diversification within a portfolio, exhibits much lower volatility relative to equities, and serves as an inflation hedge albeit with less than a perfect record.
Clients can invest in gold in multiple ways. Gold futures is the most convenient and optimal among the six alternatives.
Gold has its downsides. It is a non-yielding asset and performs dismally against innovation and growth.
Except for Nasdaq, bitcoin and ethereum, gold has outperformed currency majors, equity indices, US treasury, and commodities.
In a future paper, Mint Finance will explore ways in which gold can be transformed into a yield generating asset.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
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Reservecurrency
The 5 ways civilizations collapseI watched a great video about the collapse of civilizations and I'd like to comment on it, with a bit more of a focus on the economic reasons and outcomes.
1- Crushed in a war by a far stronger force
Destroyed, or elite destroyed (government & big banks & business owners)
Aztec Inca Baghdad Carthage...
Modern examples include Iraq and Libya. Just look at before and after pictures. Libya was destroyed by the USA and has returned to slavery, Iraq is some sort of warzone with a currency being literally sold as a ponzi scheme (search the Iraqi Dinar scam), he by the way the "it will go up" Dinar crashed so hard a few months ago I wasn't sure if it was worth posting about.
PRO TIP: DO NOT INVEST IN A COUNTRY THE USA ARE ABOUT TO "BRING DEMOCRACY" TO!
2- Too aristocratic
Central American, Andean, Greek, Anatolian, Syrian, Ghana, Zimbabwe, Indus Valley, Khmer civilizations ended in big part because they were too inegalitarian.
(Very) ancient civilizations were all ultra aristocratic with the population getting vampirized by a minority through slavery (wageslavery), ravenous taxes (reminds me of something), human sacrifices. And they went down the same way.
In ~1150 BC all civilizations around the anatolian peninsula (including the famous Mycenaean one in Greece) rapidly collapsed at around the same time.
In some cases tiny barbarian armies were able to wipe out much stronger civilizations. The reason is the population hated their parasitic rulers and did not want to pay heavy taxes for their rulers to waste (ancient elites did not know well how to manipulate a population into submission and even WANTING higher taxes, also people used to have more common sense)
The world entering the iron age meant the plebes could easily get armed, and an unfair government with crushing taxes would simply get killed (like in France in 1789). I wonder why today governments are trying so hard to disarm the population? Probably just a coincidence.
Ancient Egypt near the end had taxes that could get as high as 60%. Huh with 25% corporate taxes plus 20% VAT plus 15% social contributions plus 10-50% income tax plus other taxes we're easily reaching that Egypt max and even going past it.
We do not have that much evidence of bronze age nations, but more recently we know that the American and French revolutions started as tax revolts against unfair privileged governments. Everyone knows this, it's clear, precise, not my opinion, unlike the subjective list Davos made on how civilizations end (link at the bottom of this article).
Inequality also allowed some ruling class to replace the previous one, like with the Caliphates for example.
The population was keen for a change of government.
These bronze nations with crushing taxes I mentioned could never grow very big and collapsed with the iron age (bronze weapons and armors were expensive and slow to make but not iron which allowed the peasants to get armed and not submit). Following their collapse large empires rose, such as the Roman and Persian mega-empires (at its height, 50% of the world population lived in the Persian empire, talk about a beast). Rome only had a 1% wealth tax from what I've read and did not over-rely on slaves. Rome lasted 1000 years and ended because of decadence. Obviously treating the population fairly (mostly with reasonable taxes, that's really all they care about), rather than a population that hates the rulers and would see foreign invaders as saviors, is what allowed these empires to grow and maintain their size.
Modern governments tricked the workers into thinking "only the rich pay" and playing this childish "divide to conquer" tactic, but everyone pays, and people over time slowly figure it out. Some extremely ignorant and stupid members of the population support 90% taxes. Never seen in history. Cool so a company hiring workers will have to charge $10,000 for them, pay $9000, and there's $1000 left as wage minus the owner margin with life being way more expensive (hiring a $2000 wage plumber would cost $20,000). In inflation adjusted terms if basic workers still get charged $3000, rather than getting a wage of $1500 they'll get 10% so $300, minus the boss margin. Brilliant! So they would be totally reliant on welfare. And what? Even more mad at companies that pay them a misery wage? And ask for even higher taxes? Lol how are they falling for this?
This explains why western government are doing everything to prevent people becoming their own boss, or they'd see it first hand.
3- Becoming too conservative
After the great plague this happened:
- MENA became ultra conservative, with Sharia law, and looking for the "return to the golden age". Still to this day they are primitive and ultra conservative. Iran had a ray of light of progress with the shah 50-60 years ago but it was short lived, the medieval backwards religious leaders quickly took over and imposed their rule of darkness.
- India well... They were 40% or more of world GDP before, and they dropped to some unbelievable low number like 1%. They roll themselves in cow dung and bathe in the radioactive Ganga river. And open defecate. The Maharaja and silk road traders would never believe this future. It's beyond, I'd cry if I was indian.
- China: I think most of the great wall was built by the Ming dynasty (1368–1644), or rebuild. They got into isolationist policies, got bureaucratic, corrupt and superstitious and stagnated at best.
- West Africa: At the hand of slavers with primitive superstitions I guess. China still has their bureaucrats. Maybe that's why Africa is so poor, they whole civilizations were centered around slavers, and now they can't do that, meanwhile China is still allowed to have its bureaucrats (some of it works for them it's too much that is bad).
- Russia: Became the third Rome. Went from an area of maybe 1-2 million square kilometer in east Europe and half of France population to this monster of 20 million square km and 3+ times France pop.
- West Europe: Age of Enlightenment, progress and so on. Unlike others that had an unfair ruling class (Brahmins/Priests in India, Slavers in Sahel, Bureaucrats in China, Samurais in Japan, etc), the West had a balance between the monarchy, merchants, warriors and priests. Wealth equality was way greater back then that it is today. Yes the industrial revolution was a big factor.
The conservative "civilizations" like China had contempt for the West, and saw them as irrelevant weirdoes. And then they went through centuries of humiliations and conquests by the West. To this day the (declining) West still makes 50% of world GDP.
A funny example is India in 1000 AD during the muslim domination. The superstitious ruling priests in the face of muslim invasions rather than use taxpayer money to build armies, built... temples... are you serious? Well it did not work.
Before that at the start of the iron age the old bible civs (Babylon, Assyrians...) that were ruled by corrupt and superstitious priests were wiped out by the mighty Persian empire, and Persians were so nice that people actually wanted to live there the priests had no chance of rallying the population and start a rebellion. As I explained in 2-.
Bruh: "Darius allegedly asked his satraps whether the tribute was not too high. When they said it was moderate, Darius ordered that they should pay only half as much.". Another version says he took taxes and returned half of it "back to the people" (tax returns?). The empire was at its greatest extent under his rule which was in the early days of it. He divided taxes by 2 and everyone wanted to join. You don't always need huge armies.
Unlike the modern west, Persia DID NOT PROVIDE AN "US VERSUS THEM" STORY. Can you imagine? A huge empire, and no divide. People actually enjoyed living there. No divide to conquer.
www.oxfordhandbooks.com
4- Becoming too reformist
The flip side of the conservative coin. Look at China with the cultural revolution. They went from what maybe 15% of world GDP to 1%, and they were the poorest country in the world.
Russia in the early 1900s was a big empire, the 4rth world economy (smallest than Canada today) and if their population bred like non communist countries (UK, France, Germany), they'd have a population of at least a quarter of a million, they'd probably be nearly as powerful as the United States.
The marxist reformists hurt Russia so much it's nauseating. They set them back at least a century. Yes there was technological and standard of living progress but of course there was! Even in Somalia. It's worldwide. It's like a super strong uptrend but within that worldwide uptrend they lagged behind.
The reformists have no moral boundaries and work to totally destroy the "old world" to reach their idiotic utopia.
These disgusting creatures are an absolute plague to humanity and set civilizations back centuries.
They love to destroy statues, change constitutions, send people to camps, burn books etc.
Hitler said about Christianity as "We have no sort of use for a fairy story invented by the Jews" and criticized its weakness compared to glorious islam, Catholics were sent to camps (especially Jehovah Witnesses) and moral standards went poof. Germany lost 1/3 of its territory, 15 million Germans were deported, West Europe stopped ruling the world, the USD became the reserve currency, and so on.
Communists are so evil and stupid they dried up the Aral Sea for their "great" irrigation projects, and destroyed entire forests.
The Aral Sea was one of history greatest environmental tragedies. The region economy was devastated, bringing unemployment and hardship, the sea life is gone probably millions of species went extinct, the region is a pollution disaster. And some extremely dumb celebrities (pleonasm) think communism is the solution to save the climate.
"There is so little confidence in Russia's economy that there are more Rubbles outside of it than inside" damn. How long for the confidence to come back? 100 years? more?
The Soviet Union (I quote):
- Destroyed every functioning social system in Russia in order to usher in their glorious revolution and utopia
- Artists were totally controlled
- The Church was wiped out
- The most productive and hardworking members of the population were killed
- The ruling class enslaved people in gulags
- Standards of living were lowered for faster industrialization and make it look like progress, like it was working
- Non Governmental organisations and clubbed were banned
- Labor Unions were banned (the irony)
- People that were 1 minute late to work were eliminated by the secret police, or people feared that was the case
- Makes me want to vomit
Societies are held together by structures such as religion, family, patriotism. The state is not intelligent enough to control and run everything.
The state tries to run the economy it's a catastrophe. The state tries to run a pandemic OH MY GOD. Anything they do is shit and vomit.
I'd say the state is not intelligent enough to not forget to breathe. Oxygen thieves.
The French revolution resulted in The declaration of human rights which says the government must be held responsible via violence if necessary, revolt is not a right but a duty. The Americans that wrote their Bill of Rights literally 6 months later have a similar thing with their amendments or something. Of course these sickening evil creatures that are not Politicians but demagogues with 0 convictions that only care about personal success and power and getting votes have used manipulation and brainwashing to get away with everything, cause great harm, and not get held responsible.
"Extreme reformers aren't smart enough to realize how dumb they are, thinking themselves geniuses (😆) and everything that's not under their control is an evil force that gets in the way of the great plan"
Today the west is obviously at risk. How big is this risk? I can't tell because this would get me mass reported and banned, and maybe even sent to jail. (That answers the question). I cri evertiem.
5- Decadence
Maybe the slowest way to end. How Rome ended but it was accelerated with decadence bringing in destroying armies (1-).
The 3 natural stages: Barbarism, Civilization, Decadence.
Greeks near the end (obviously) saw themselves as "above" earthly matters, and used slaves for work while they enjoyed themselves in "higher" ways.
In other words they were lazy bums that felt morally superior and selfish greedy perverts that took it easy. Disconnected from the real world.
A bit like modern westerners with robots and not wanting to work, and importing much of what they consume. And disconnected from reality, terrified of dying at 80, willing to ban hunting, and much more.
We see low birth rates (there are Roman and Greek texts complaining about this, and blaming the nobles for "having fun" rather than procreate, for "being eager to see their bloodline die").
We see low (or no) economic growth.
We see sexual perversions.
And so on, you get the picture.
An example is when germanic barbarians invaded roman south france (gaul), the local aristocracy claimed there was no danger, barbarian terrorists that cut heads off with massive axes were a tiny number of "lunatics" nothing to worry about and those that wanted to protect the region were far right islamophobes wups I mean germanophobes. The aristocracy smelled their own farts and were stuck inside their own heads and thought it was impossible for these third world barbarians to hurt in anyway their region. Morons. What options do the population have when the ruling class is useless? It's like cutting a serpent's head. Combine being useless to outlawing weapons and spreading propaganda to make sure "radicals" never gain power and you get an inevitable collapse.
So to conclude, you have all these ways for societies to collapse, once great civilizations vanish.
And today:
Point 4 => Who will seriously invest in Russia? So much for marxist progress.
Point 1 => Who will buy Iraqi Dinars or invest in Libya other than fools?
Point 3 => Who will invest in Iran? Who wants to invest in Afghanistan?
Point 2 => Who wants to invest in old Babylon and Egypt. Ye there are no recent examples.
Point 5 => Who wants to invest in the Nikkei 225 since 1990?
But there is 1 thing that survives all these collapses, that keeps its value: It's yellow and shiny 😉
The world economic forum made their own list of reasons definitely not biased, here is a link for a good laugh:
www.weforum.org
The historical major world currenciesGlobal institutions want to create a new world order and new age already (to replace capitalism & socialism).
So maybe already we are going towards not only a new world currency but a new systel (in red) and I'll be able to update this?
Global banking and nations are interested in the blockchain (a centralized currency they can control so they can prepare a new major crisis for future generations).
Globalists are going to present their new world order and economic system in January 2021 so stay tuned.
The modern age (1800s - 2000s) saw the biggest inequality in history (congratulations to revolutionaries well done).
Bah that's simply because, you already know... Socialism and capitalism were never really tried! 200 years of "that was not real socialism". Sad.
And as always,
This time it's different!
