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What Does Fractional Reserve Banking Mean for Your Finances?

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Have you heard the term “fractional reserve banking” before but aren’t sure what it entails? Perhaps you’re wondering exactly what happens after you’ve made a deposit with your bank? Whatever reason you’re reading this article, we’re here to help answer both of those questions.

Here, we’ll run through reserve banking in more detail, dive into its history, and provide some of the advantages and disadvantages that this kind of banking has to offer.

What is fractional reserve banking?

You may be under the impression that banks have to hold onto 100% of customer deposits in reserves. However, that’s not actually the case.

Notice the fractional in fractional reserve banking? It’s there for a reason. See, fractional reserve banking is a banking system that requires banks to hold only a portion of the money you deposit with them as reserves. Your fraction stays with an account within the central bank, while the rest – and this may surprise you – is free to be invested or lent out by the bank.

So, rather than simply sitting there, small deposits are grouped together to make loans and earn the bank money. The remaining funds ensure that there’s enough to cover customer withdrawals.

For example, if someone deposits $1,000 in a bank account, the bank cannot lend out all the money. It is not required to keep all the deposits in the bank’s cash vault. Instead, it’s only required to keep 10% (or $100) as reserves. From here, it can then lend out the other $900.

unlocking safety deposit box

The history of fractional reserve banking

So, how did this concept first come about? It’s never been fully confirmed, but some state that it originated through an unnamed goldsmith. Realizing he could lend out a portion of gold, and earn interest on it, the crafty goldsmith would then sneak it back into the reserves before anyone else twigged what he was doing.

Others point to the Early Middle Ages as the source of its origins. With people increasingly storing their money with banks, they wanted a simplified way of paying for goods and services. Rather than guaranteeing that you would receive the exact same coins that were originally deposited when a customer chose to withdraw them, the deposit balance acted more as an IOU.

By doing so, banks could then transfer coins from one account to another as a form of payment between two customers, rather than a customer having to withdraw their coins, pay a fee for the trouble, and hand the coins to the person requiring payment.

What are the pros and cons of fractional reserve banking?

The pros of fractional reserve banking

The system has its merits, namely more readily available credit, and the ability for banks to earn additional money for their reserves. In theory, customers will benefit from these additional reserves in the form of interest on their bank deposits.

The cons of fractional reserve banking

Fractional reserve banking can be something of a catalyst when it comes to inflation. The system gives rise to the money multiplier effect – the proportional amount of increase in final income as a result of an injection or withdrawal of capital. This increases the supply of money, which decreases the value of a dollar, which in turn decreases the US dollar’s purchasing power.

If everyone under a fractional reserve system attempted to withdraw their money at the same time, the system can easily collapse. Banks do not hold enough cash in reserve at any one time to supply people with all their cash when they need it.

image of stock market tracking

These instances, known as bank runs, happen when a customer believes that banks are about to fail. In fact, it’s what happened during the Great Depression, with many people losing their life savings. We have this to thank for the creation of the Banking Act of 1933, which protects deposits in participating banks up to certain limits.

Likewise, if banks recklessly lend their money out, as in the case of sub-prime mortgages, money may simply never be repaid, as unqualified borrowers default on their loans. This can cause recessions to take place, as it did in 2008. Bear Sterns lent excessively more than they had in their deposits, while over in the UK, Northern Rock did exactly the same.

The relationship between fractional reserve banking and the gold market

In the same way that your monetary deposits are affected by fractional reserve banking, so too is gold – if it’s held in an “unallocated” account. So, while it’s safely locked away from thieves in a well-protected bullion bank vault, it’s still subject to the same risk as your cash is – meaning that only a fraction is only immediately available for withdrawal.

Allocated gold like the gold offered by Glint, on the other hand, is exempt from these effects. That’s because you genuinely own it. It’s allocated to you, and the gold is held in allocated storage under a custody agreement.

That means banks or financial institutions are unable to lease out your bars for the simple reason that they don’t and can’t have access to the allocated bullion. That’s not all: if you buy gold through Glint, then you’ll only be paying for the actual amount of gold that you want.

stack of gold bars

As a result, you can rest assured knowing that your gold is free from the risks of fractional banking, and any sneaky thieves who may be lying in wait to make their move. And since you own the gold, it can be used to make the same everyday purchases online and in-store, from something as small as a cup of coffee to your next vacation!

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at 1(877) 258-0181.

Understanding the Relationship Between Fiat Money and the Gold Standard

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As a status symbol, gold is worth its weight in, well, gold. But as sought after as it is now, it used to carry even more clout.

Although fiat currency is the norm and has been for some time, it was the gold standard that once ruled the economic roost, playing a role in everything from international trade to the value of currency. But how do the two compare? How did they originate? And what are their pros and cons in the present day?

We’ll take a look at the gold standard vs. fiat money in more detail to see how things have changed over the decades.

What is the gold standard?

You’ve probably heard the term ‘gold standard’ used as a benchmark of quality. Well, the expression has its roots in the actual monetary system, where the value of a country’s currency is linked directly to gold.

So, a country using the gold standard would set a fixed price for gold, say, $100 an ounce, and then buy and sell it at that price. This fixed price would then be used to determine the value of the country’s currency. In this case, $1 would be worth 1/100th of an ounce of gold.

A quick history of the gold standard

We can trace the origins of the gold standard, in the US at least, back to the 1800s. During this time, we used a bimetallic system of money, i.e., a combination of gold and silver. But since very little silver was traded, we pretty much used a gold standard.

Gold as a way of evaluating currency, however, has been around for centuries and was used before World War I as a means of international trade. Countries with trade surpluses would receive gold as payment for their exports. Those with deficits, on the other hand, would have to spend gold as payment for their imports.

Come 1900, the Gold Standard Act saw the fruition of a true gold standard, establishing gold as the only metal for redeeming paper currency in the US. This meant that transactions no longer had to be carried out with heavy gold bullion or coins – good news for those used to lugging gold around town!

bank vault with safety deposit boxes

Why was the gold standard abandoned?

The gold standard came to an end for several different reasons.

Between 1900 and 1932, the US was thrown into disarray. The country entered World War I in 1917, which led to a short recession between 1918 and 1919. Economic strife would rear its head again after the stock market crash of 1929, with the country entering The Great Depression over the next few years.

With banks failing, cash supplies low, and the Federal Reserve System collapsing, the gold standard, now entirely unsustainable, was ended in 1933. It was dealt a further blow after the Gold Reserve Act of 1934 prohibited the ownership of gold except under license.

Any traces of the gold standard were erased in 1971 when Nixon ended the trading of gold at fixed prices. Since then, the gold standard has not been used in any major economy.

The pros and cons of the gold standard

What are the pros of the gold standard?

Reduce uncertainty of economic trade: The exchange rates of any countries operating under the gold standard would be fixed. When importing, a country indirectly pays in gold, which reduces the money supply. Countries that are exporting receive gold as payment, which further helps to control the money supply.

Retains value across the globe: Fiat money can be printed without limit, and thus has no real value. Gold, on the other hand, holds real, stable value thanks to its scarcity.

Restricts the printing of money at will: A gold standard ensures that new money could only be printed if a corresponding amount of gold was also available to back the currency.

close up of gold bars

What are the cons of the gold standard?

Only beneficial to gold-producing countries: Not all countries are lucky enough to have gold mines. Places like the US, China, Australia, South Africa, and Russia have huge gold reserves to rely on. Those without would only be able to obtain it through a trade surplus.

Limits economic growth: As the money supply increases, the supply of gold in the economy must also grow at an equal rate. But gold is scarce, so economic growth would have to be at a lower rate.

Destabilizes the economy: The periodic deflations of the gold standard could result in a destabilized economy. It could also harm national security by restricting a country’s ability to finance national defense.

How does fiat money differ from the gold standard?

Rather than being made or backed by precious metals, fiat money is a government-issued currency backed by the government that issued it. This includes currencies such as:

  • Dollars, quarters, dimes, and nickels in the US
  • The Mexican peso
  • The Euro
  • The British pound sterling
  • The Chinese yuan

It’s because of this government backing that fiat money holds value. And since it isn’t linked to any valuable commodities like rare metals or oil, governments or banks can limit the supply of their currencies in order to protect its value. In times of recession, or as economies are on the brink of recession, this currency can be inflated to stimulate growth.

printing US dollar bills

The pros and cons of fiat money

 What are the pros of fiat money?

Greater stability: Unlike commodity-backed currencies which can fluctuate, fiat money is relatively stable and easily stores currency value.

More versatile: Fiat money is more widely accepted and can be used as legal tender in various settings and countries.

Cost-efficient: Not only is fiat money cost-efficient to produce, it’s easy to carry around and exchange.

What are the cons of fiat money?

Not entirely foolproof: As the global financial crisis proved, fiat money doesn’t cushion against the impacts of a recession.

Increased risk of hyperinflation: Though hyperinflation is a rare occurrence, the unlimited supply of money, and the ease with which it can be printed, can stoke inflation.

Potential for depreciation: Since it’s tied to a government, fiat currencies can depreciate drastically should the issuer even run into economic hardship.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at + 1(877) 258-0181.

A Guide to Hyperinflation and What it Means

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printing dollar bills

Uncommon but hugely damaging, hyperinflation can destroy economies. Here’s everything you need to know…

Hyperinflation is, thankfully, a rare occurrence. But given that the inflation rate in this country has been hovering around 9% as of May 2022, this article feels especially relevant.

While this number might look scary – and will have its fair share of consequences across the nation – it’s also, you’ll be happy to hear, a whole different ballgame compared to hyperinflation.

So, what do we mean by hyperinflation? Mentions in your high school textbooks aside, it might not be a term you’re familiar with. If that’s the case, we’re here to help.

Below, we’ll look at hyperinflation in more detail, so you can get up to speed on what it means, what causes it, and how you can protect against it should it arise in the future.

What does hyperinflation mean?

Hyperinflation is the term used to describe rapid, excessive, and out-of-control general price increases in an economy. In periods of hyperinflation, these prices rise to more than 50% per month. Hikes like this mean that something as everyday as a loaf of bread or a cup of coffee might cost a certain amount in the morning and a higher amount later in the day.

Like we said up top, hyperinflation is a rare occurrence, particularly in developed economies. That said, it has occurred many times throughout history, including in China, Germany, Russia, Hungary, and Argentina.

woman worried checking bills

What is the difference between inflation and hyperinflation?

So, how does this differ from regular inflation? Inflation is a sustained price increase in goods and services that’s caused by an increase in money supply by a government. Inflation can also happen as a result of periods of economic growth that create more demand for skilled employees and resources. This creates higher salaries, which in turn creates higher prices.

For the most part, a certain amount of inflation is a good thing for the economy. As prices go up, consumers have more of an incentive to spend their money. The spiraling prices of hyperinflation, on the other hand, can wreak havoc on an economy, causing everyday essentials like food and fuel to become scarce, and incomes to drop, as a result.

Once hyperinflation is underway, correcting it becomes an uphill battle. Reducing government spending is a common approach, but the drastic cuts to social spending, military spending, and subsidies come at a price. Slashing the money supply can also help, although this causes interest rates to soar. Anyone in the market for a new house or vehicle is going to struggle in this scenario.

In extreme circumstances, other countries have resorted to replacing their currency with a more stable foreign currency. In 2000, Ecuador replaced its currency, the sucre, with the US dollar, while in 1991, Argentina created a new version of its currency tied to the US dollar, which helped to ease hyperinflation greatly.

us dollars

What causes hyperinflation?

There are two reasons why hyperinflation can happen.

The first is a rapid increase in a country’s money supply, usually when a government prints more and more money. While this might sound like a good thing, there’s a reason for the upswing in money printing: to pay for its excessive spending. As the amount of money increases, the value of each individual unit of currency drops, and prices rise.

The second cause, demand-pull inflation, takes place when a surge in demand outstrips supply, causing prices to skyrocket. This happens due to increased consumer spending due to a growing economy, abrupt rises in exports, or increases in government spending.

What happens when there is hyperinflation?

Across individuals and economies, the effects of hyperinflation can be disastrous.

With people rushing to avoid paying more for goods, hoarding becomes commonplace. What might start with durable goods soon leads to perishable goods like bread and milk. As these everyday goods become scarcer and more expensive, people are unable to pay for even the most basic of necessities.

As money loses its value, savings become worthless. This means that the elderly are often hit the hardest during periods of hyperinflation. Likewise, with loans losing value and people halting their deposits, banks and lenders soon go bankrupt.

Hyperinflation also causes the value of the currency in foreign exchange markets to come crashing down. With the cost of foreign goods at all-time highs, importers go out of business. With the loss of so many jobs and the bankrupting of so many businesses, unemployment increases as a result. Meanwhile, government tax revenues fall, struggling to pay for what were once basic services.

woman putting savings in piggy bank

There are small, specific positives to hyperinflation, however. Those who took out loans will benefit; their debt will be next to worthless until it’s all but wiped out. The falling value of local currency also makes exports far cheaper than foreign competitors. Exporters receive hard foreign currency too, which increases in value against the falling local currency.

All told, however, the fallout of hyperinflation can cause nations to fall into extreme recessions and even depressions.

How to protect your finances against hyperinflation

We’ve spoken about protecting from inflation before, but clearly, hyperinflation is an entirely different beast.

To protect your finances against hyperinflation, it’s well worth keeping an eye on your personal balance sheet and budget. Both inflation and hyperinflation can turn your savings to dust. To stay ahead of rising or out-of-control inflation, people have used some of their savings to pay off debt, cutting off rising interest rates at the pass so they have less debt service to deal with during periods of rising inflation.

Making some changes to your budget can also help with weathering any potential storms. If there are areas where you can minimize your spending and create larger cash flow, it may be possible to combat the increase in the cost of goods.

Even a few small changes, such as quitting your gym membership, eating out less, carpooling to work, or downsizing that gas guzzler, can make all the difference.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto, and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk-free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at 1(877) 258-0181.

Economic Theories You Should Know About

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In this day and age, it pays to stay up to date with the current economic climate, especially when things are as up in the air as they are right now. With a handle on some of the most well-known economic theories and concepts, you’ll be able to improve your awareness of major economic trends, consumer behavior, and developments in the financial market.

Below, we’ll run through some basic concepts of economics to give you a stronger foundation when it comes to the money matters that surround our everyday lives.

What is an economic theory?

Things are going to get technical pretty quickly here, but it’s all in the name of knowledge, of course.

Basically, an economic theory is a set of ideas and principles that detail how different economies function. Certain theories might aim to describe specific economic developments such as supply and demand, whereas others can allow economists to analyze, interpret, and predict the ways in which financial markets, industries, and governments might behave.

What are the main economic theories?

Supply and demand

Supply and demand refers to the relationship between the price of a product and how willing people are to buy or sell it. This unit price will vary until it settles at a point of economic equilibrium – or when the quantity at which consumers demand a product equals the quantity at which a consumer supplies it.

In other words, as the supply of a product decreases but there’s still a demand for it, the price of it might soar. In this example, the demand is greater than the supply.

picture showing supply and demand in warehouse

Scarcity

A key economic concept, scarcity refers to when the demand for a product or service is greater than its availability. This is paramount for understanding how products and services are valued. Take diamonds, gold, or even certain kinds of knowledge, for instance. These things are scarce – and are more valuable for being scarce – since those who sell such things can set higher prices.

They’re aware that because more people want these products or services, and availability is low, they can find buyers at a higher cost.

Opportunity cost

Opportunity cost is the amount of potential gain an investor misses out on when they commit to one investment choice over another. In laymen’s terms, it’s the loss you take to make a gain or the loss of one gain for another gain.

Let’s say an investor has the choice of selling stock shares now or holding onto them to sell later. Selling them now would provide immediate gains, but they’d be losing out on any gains the investment might make them in the future.

Opportunity cost doesn’t necessarily have to be applied to investments or money either; you can just as easily apply it to life decisions, no matter how small.

Incentives

In the economic world, incentives are what encourage or motivate us to act in certain ways financially. They’re what make consumers and businesses respond to market changes like prices and financial benefits.

This can be something as simple as offering buy-one-get-one-free discounts or government subsidies that allow businesses to financially benefit from carrying out certain actions.

Willingness to pay

Willingness to pay (WTP) is the maximum price that a customer is willing to pay for a product or service. This amount varies from person to person and is usually informed by extrinsic and intrinsic differences.

Extrinsic differences are demographic factors such as age, gender, race, income, and level of education. Intrinsic differences, meanwhile, go a little deeper.

These are factors that you’d unearth by asking specific questions rather than something you can identify through observing people. These differences might include someone’s risk tolerance, their desire to fit in with others, and their interest levels in different subjects.

customer shopping in retail store

Purchasing power

This concept refers to the number of goods or services that a certain amount of money can buy at any one time. As such, it’s an indicator of the current market condition, since it allows businesses (or individuals) to work out how far their money will go.

Classical economics

Established way back in the 18th and 19th centuries by the likes of economists and political thinkers such as Adam Smith, John Stuart Mill, and others, classical economics posits that market economies are, by definition, self-regulating systems ruled by the laws of production and exchange.

It’s also where we get the invisible hand concept. Smith noted that by following their self-interest, consumers and firms can create an efficient allocation of resources for the whole of society.

Confused? OK, here’s a clearer explanation: a company charges a very high price for a certain item at $6. This incentivizes another company to charge $4 for their version of the item.

Consumers then switch from the high-price item to the lower-price item. This puts pressure on the first company to lower the price until the equilibrium between supply and demand has been reached.

couple planning budgets and finances

Malthusian economics

Malthusian economics takes the view that while population growth rapidly increases, the supply of food and other resources is linear. This means that when a population grows over time and overtakes a society’s ability to produce resources, their standard of living may reduce and result in depopulation.

Monetarism

Monetarism puts forward the idea that governments can achieve economic stability by controlling monetary supply. Its central principle believes that the total amount of money circulating in an economy is the main factor that determines its growth.

New growth theory

The New Growth Theory (NGT) focuses on how the individual’s desires and needs act as the main reason for economic growth. People purchase, sell and invest depending on their wants and needs, all of which results in GDP growth.

A large part of NGT is the assumption that competition flattens profit, causing people to look for better, more efficient methods of doing things to maximize their profit-earning potential.

Moral hazard theory

An economic phenomenon that involves parties entering contracts in bad faith, moral hazards arise when an entity, such as a corporation, increases its exposure to risk during a transaction so they can maximize profit. Typically, this is to potentially avoid the consequences associated with taking on that risk.

In these scenarios, it’s the other party that has to bear the cost of such risks.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto, and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at 1(877) 258-0181.

Budgeting vs Financial Planning: What’s the Difference?

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man using calculator to plan

In similar lanes but with key differences, learn how to budget your money with this helpful guide.

As always, this is not financial advice, however, if you’ve never done either, then budgeting and financial planning might seem pretty much identical. And sure, they have their similarities. But they’re more like two sides of the same coin; both help to improve your individual finances, just in their own way.

So, what exactly are the differences, and how can both budgeting and financial planning help you to maintain a healthy financial position both now and into the future. We’ll go through how they differ, along with their benefits, in the article below. Let’s get started…

What does budgeting mean?

Budgeting is all about the short term. By tracking your income and expenses on a weekly or monthly basis, it looks at your money in the here and now. Essentially, budgeting covers how much you make, measures how much you spend, and lets you spend less than what you bring in.

Fixed expenses like your mortgage, rent, and childcare will take priority. You’ll then work out what you can spend on food, transportation, and clothing. Anything that’s left over can then be used on things like eating out, holidays, or long-term investments, if that’s what you want to do.

When you budget, you make active decisions as to where your money goes. Tracking spending in this way makes balancing your outgoings and paying bills on time far easier, and in the event of emergencies, you’ll have extra cash to deal with the unexpected too.

man looking over paperwork

What is financial planning?

Whereas budgeting offers a snapshot, financial planning looks at the larger fiscal landscape, so you can reach more long-term goals. There’s a lot more vision involved in financial planning, allowing you to plot a course on the way towards milestones like owning a home, starting a family, furthering your education, and retiring.

A financial plan lets you track your progress towards these kinds of goals quarterly or semi-annually. Generally, the process involves something akin to the following:

  • Listing the things you or your family want to achieve
  • Looking at your current financial position including analyzing assets, liabilities, income, and expenditure
  • Analyzing how far from achieving these goals you are
  • Creating a plan of action to help you reach your goals
  • Putting this plan into practice (aka the hard part)
  • Making the necessary adjustments if things change

You may employ a financial planner or advisor to be on hand to help you create a tailored financial plan and offer objective advice along the way.

How do budgeting and financial planning differ?

Starting to get a sense of their differences? Let’s take a closer look at their distinctions in more detail below.

Different aims

Budgeting is more concerned with cleaning up certain spending habits. Maybe you’ve been eating at too many fancy restaurants lately? Or you’ve been treating yourself to fancy new clothes more than you’d like. Putting more into your savings account every month might be a wiser decision instead.

Financial planning, on the other hand, is more concerned with reaching bigger financial goals, such as paying off debt or saving for your wedding day.

Slow and steady vs. quick and instant

When your spending habits are placed under the budgeting microscope, you’ll be tracking your progress far more often than you would with financial planning. Whereas the latter is more like a long-distance race, budgeting is a 100m sprint by comparison; you’re moving quickly to tick off short-term goals as often as you can.

Financial planning looks at larger goals, and for that reason, progress is slower and more measured. You’ll also be tracking your progress a lot less too, usually at quarterly or annual intervals.

piggybank to represent savings

Drilling into the details

Analyzing your spending habits means getting down to the brass tacks of where your money goes. When you’re committed to counting the pennies, you’ll be setting up spending limits that require a more incremental view of your outgoings, even if it’s just a few dollars a month you end up saving.

On the other hand, financial planning isn’t as concerned with such a granular view of things. Getting too hung up on the exact amounts you’re spending can actually end up getting in the way of your long-term goals.

What are the benefits of budgeting and financial planning?

The benefits of budgeting

  • More control over your cash – Rather than spending freely and hoping you have enough left in your account when it’s time to pay for bills, rent, or the mortgage, budgeting lets you know you have enough to pay for your necessities.
  • Helps you save for unexpected costs – A sick family member. Repairs to your car. Losing your job. When you budget, you can always fall back on your reserves when something you weren’t prepared for rears its head.
  • Highlights immediate money issues – By shining a light on your spending, you can identify any problems that need rectifying before they spiral out of control.
  • Makes talking about money issues easier – Nobody likes to have ‘the money talk’. But it definitely pays to mention your budgeting plans to your loved ones. Not only will they be on the same page regarding your spending limits, but they’ll be part of the solution too, all of which adds up to a more prudent approach.

family having discussion on sofa

The benefits of financial planning

  • Creates peace of mind – Money worries are a big issue. They’re also an avoidable one. With the right planning and financial tools on your side, it’s possible to create a greater sense of security and peace of mind, even in the event of emergencies.
  • Lets you live the life you want – With a plan that you can actually follow, financial planning lets you make the necessary adjustments and alterations that give you power over your money. With an enhanced view of your finances, you’ll always be aware of the amount you need to live life your way.
  • Greater goal setting – When you have goals to work towards, it gives your life a greater sense of direction and purpose. And it’s been said that people who actively work towards their goals are almost 10 times more likely to succeed. That’s the kind of motivation we like to hear about!

To learn more, visit our homepage or give us a call at (877) 258-0181.

5 Questions to Ask Before You Buy Gold

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man using phone while on train

Before spending your hard-earned money on any sort of asset, it’s important that you’re well-informed so you can make sure it’s the best route for you. Investing in any type of asset can carry risk as well as reward, which is why you should consider asking exploratory questions before taking the leap.

To help you navigate the world of gold in more detail, we’ll look at just some of the questions you should consider finding the answers to before you become the owner of a precious metal.

Please be aware that this is not financial advice and is merely a guide.

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The pros and cons of buying gold

As with any financial decision, weighing up the pros and cons can help you to see the bigger picture and how your decision may impact your current and even future situation. When it comes to buying gold, being able to understand the opportunities, as well as the obstacles, can put you in good stead.

What are the pros of buying gold?

The first question most people turn to when making a decision is ‘what’s in it for me?’. When it comes to your financial situation, this is important so as not to leave yourself vulnerable.

Buying gold has often been pitted as a low-risk commodity because it has been seen to maintain its purchasing power over time. Purchasing power is a gauge of how much a currency supply can buy and is affected by factors such as inflation.

With that in mind, gold is often seen as a reliable hedge against inflation, as it historically has been proven to retain its value well. No country in the world links its currency to gold, which is why many people choose to put their money into gold at times when its purchasing power may be in decline.

Generally speaking, the value of gold doesn’t fall when inflation is rising, unlike money. However, there have been occasions where gold’s value has fluctuated in light of inflation, so it’s not a guarantee.

woman using phone to research

What are the cons of buying gold?

Buying gold might sound like a promising way to protect your wealth, but it’s important to remember that nothing comes without its potential pitfalls. While gold may offer some protection against economic events like a rise in inflation, it doesn’t necessarily offer the earnings potential of other investment assets. For example, investment in stocks is high risk but could deliver high returns, providing capital growth and income.

In this sense, buying gold won’t necessarily increase your personal wealth, but could provide a method by which to diversify your financial portfolio.

Is gold better than paper money?

With what you now know about gold, the next question you may consider investigating is whether gold is actually a better option than paper money when it comes to spending and saving. After all, gold is universally recognized and accepted as a payment method; it’s valued across the world.

Paper currency used to be backed by gold, and this was known as the gold standard. The gold standard is a type of system by which the standard unit of currency is kept at the fixed value of gold. In 1971, the gold standard ended in the USA which meant that the US government was then able to print paper money more freely.

No one system is more suitable than the other, but what’s important is that the likes of gold and other assets can offer you an alternative method to limit your exposure to risk and volatility. Gold can be used as a means of exchange, providing a function to spend or save as you need, which is why it can be an attractive avenue to explore.

analysing financial information on smartphone

Should you buy gold or cryptocurrency?

If you’re hoping to find an alternative to government-issued paper money, cryptocurrency has most likely entered your radar. But before you buy cryptocurrency over a commodity like gold, there are a couple of things to note.

The argument of gold vs crypto is an interesting one, but it’s important to remember that cryptocurrencies can be hugely volatile and while they can contribute to high returns, they can also add a big risk to your portfolio. Gold is typically seen as a more stable opportunity, but it too can fall victim to fluctuations in the short term.

The likes of Bitcoin and other modern cryptocurrencies are still relatively young and unproven compared to options like gold, so it’s key that you’re well-informed on both and understand the potential investment risk before deciding which one is right for you.

How much does gold cost?

If you’ve decided that gold is a viable asset for your financial situation, it’s important to understand the cost of gold and what it means to buy physical gold, as its value is subject to change over time. This could impact your decision on the timing of buying gold bullion.

The price of gold is typically affected by demand and supply as it’s still a highly desirable precious metal. During large world events and crises, gold is seen as an even more viable and stable choice for investors and is often in demand when economies are on the downturn. You should also consider factors like inflation and interest rates, as these can play a role in the world of buying – and selling – gold.

In understanding how much gold costs, it can be helpful to turn to historical prices as they may offer further insights into the gold market and its potential future trajectory. Remember that making predictions can be difficult, but you may be able to make some assumptions along the way.

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How do you buy gold?

Being informed on the advantages and disadvantages of gold as well as gold’s characteristics compared to other options leaves you in a good place. When it comes to buying physical gold, direct ownership is one way of achieving even more confidence in your new asset.

For example, cryptocurrencies backed by gold offer a digital token with a claim on gold, while an exchange-traded fund enables you to buy gold through owning shares in a fund. Neither of these methods allow you to own the physical gold.

When you buy gold from Glint, you can rest assured that it’s physical, allocated gold bullion that is stored in a vault in Switzerland, with no token, fund, or bank sitting between you and the ownership of your gold. Wherever you choose to buy your gold, it’s important that you are dealing with a trusted and reputable seller.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk-free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline. 

To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

How Interest Rates Affect the Gold Market

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For savers and investors alike, current interest rates are a pervasive entity. They hold significant sway over the fiscal power of your monetary assets and can make it more or less difficult to procure new stocks, shares and commodities depending on the overall economic outlook.

But what about gold? Is the precious metal as easily affected by fluctuating interest rates as higher-yielding investments, like stocks and shares? And how exactly do interest rates affect the gold market?

Well, there’s no simple answer. Gold is unique in that its value is affected by all kinds of global economic factors, so the impact that interest rates have isn’t black and white.

In this post, we’ll discuss how interest rates affect the value of gold and debunk some of the common misconceptions surrounding the relationship between the gold market and the Federal Reserve Board. Use the links below to navigate or read on for the full guide.

How Does Gold React to Interest Rates?

Previously it was believed that rising interest rates meant that a weakness in gold should follow. And this makes sense when you consider that rising interest rates mean that higher-yield investments typically perform better, increasing demand for stocks, shares and bonds and lowering it for safer, lower-yield assets – such as gold and commodities.

If only it were that simple, however. Because while this theory makes sense on paper, there’s little evidence from recent gold market data to suggest that there’s any negative correlation between gold and rising interest rates. So, what’s going on?

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To understand the relationship between gold and interest rates, you need to consider what other factors affect the price of gold. From demand and supply to geopolitical crises and disruptive world events, the gold market is influenced by a variety of external pressures, meaning that any change in the Fed’s funds rate has only a limited impact on gold’s value.

So, when interest rates are rising, there’s no need to panic and follow the crowd by abandoning your gold assets. In fact, with interest rates having so little negative effect on the gold market, it can be a safe, reliable, and predictable place to move your money – particularly for risk-averse people who value monetary stability over gains in yield.

When Interest Rates Rise, Does Gold Increase?

If you were to look at gold prices over the past 50 years, you’d note several instances in which its value spiked in line with rising inflation. Indeed, during the gold “bull market” of the 1970s, gold prices hit an all-time high roughly at the same time as inflation was rising rapidly – raising questions about the potential for a positive correlation between gold value and the interest rate.

Confused? Again, extra context is needed. Because while there were certainly signs that the gold market was moving in line with interest rates throughout the 1970s, any positive correlation was only temporary, and more to do with the global demand for gold during this period. This was confirmed in the 1980s, a decade which sustained a bull market for gold while interest rates were in steady decline.

So, in answer to the question, there’s little evidence to suggest that rising interest rates equate to an increased gold value – save for some historical coincidences in the 1970s. As outlined earlier, gold is much more likely to be affected by other market conditions than fluctuating interest rates, so we wouldn’t recommend using the federal funds rate as a barometer for your gold-buying decision.

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When is the Right Time to Buy Gold?

Are you hoping to diversify your financial portfolio by buying gold? Then you’ll need to know a little about the best times to buy.

As touched on earlier in the guide, gold prices are affected by several factors, making knowing the best time to invest tricky. Remember, though, that unlike other assets gold isn’t nearly as volatile, so you can afford to be less choosy about the best time to buy.

When buying gold, historical value data is the most helpful gauge against which to judge your decision. By understanding when the price of gold rose and fell in the past – and what factors influenced this – you’ll be well placed to make an informed decision on the best time to buy.

If you want to buy gold while enjoying the fluidity of cash assets, Glint is the perfect choice. Our proprietary gold-buying platform allows you to buy physical, allocated gold and use it like regular money, so you can enjoy the best of both worlds. Learn more about how Glint works right here.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline. 

To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

7 Steps to Achieve Financial Security

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A financially secure future could pay off nicely. But how can you start saving? Let’s take a look here…

When it comes to financial security, there’s no shortage of worrying figures. More than 40% of Americans fret over their finances each night, for instance. Elsewhere, 29% don’t have any savings at all to fall back on. With bills, regular expenses, hobbies, and other outgoings to deal with, it’s easy to see why we can start to spread ourselves thin.

And while everyone wants to be able to manage their finances so they can afford a lifestyle that suits them upon retirement, it’s certainly easier said than done. So, what can you do to become more financially stable now and into the future?

We’re not financial advisors and aren’t in any position to offer you financial advice. So instead, we’ll offer up a few pointers and suggestions as a place to start that you may want to consider.

What is financial security?

There’s more to financial security than simply “having money”. How many times have we seen entrepreneurs, athletes, and film stars acquire vast wealth only to lose it years down the line? You could have all the money in the world, but if you aren’t careful with your finances, then financial stability might always remain out of reach.

Those with financial security may be able to live without debt, can pay their monthly expenses, invest for retirement, and have money in the bank for emergencies. Put simply, they’re able to survive if anything unexpected were to take place.

Losing a job. Taking care of a sick family member. Even dealing with the repercussions of a global pandemic. A financially secure person can handle instances like this without worry.

mature couple looking through financials

How to manage your financial assets

Start saving early

The sooner you can start to save, the better. But even if you’re a late saver, don’t worry! All that matters is that you’ve started. And remember: every cent and dollar you save can make all the difference.

Consider diversifying your portfolio

You might’ve heard the term diversified portfolio before, but the two words together still make little sense. At its simplest, a diversified portfolio contains complementary assets, like stocks and bonds, that behave in different ways.

This might mean that as one part of a portfolio declines in value, the loss can be offset by another part of the portfolio that’s rising. Essentially, it’s the opposite of putting all your eggs in one basket and can decrease risk and make sure you’re making as much money from your assets as possible.

So, what can you diversify your portfolio with? As well as more traditional assets like shares, stocks, and bonds, there are also plenty of alternative investments you can use to protect yourself from risk. From physical gold and real estate, to hedge funds, cryptocurrencies, art and antiques, and even commodities such as sustainable energy, there are a whole host of alternatives you can use to optimize your asset portfolio.

Set financial goals

What does financial security look like to you? When you can answer that, you’ll have a better idea of what to do. Maybe it’s credit card debt you’d like to pay off or something you can lean on in case of emergencies? Perhaps you’d like to start saving money each month for retirement?

Whatever your goals may be, write them down and then work out how much you need to put aside in order to achieve them. Then, once you’ve defined them, put them in order of importance so you know which ones you can start prioritizing.

man calculating his finances

Start budgeting better

You knew it was coming but budgeting really is an important part of achieving financial security. If the prospect of tightening your belt makes you anxious, try to reframe your thinking: a budget is simply a way of tracking where your money is going. Without one, it’s far easier to start spending more than you should.

And once you know where your money goes, you can start to plan accordingly. Obviously, you’ll need to put aside money for the essential things like rent/mortgage, bills, food, and car payments. Added together, these should make up about half of your spending. Don’t forget, it’s been said elsewhere that your rent/mortgage should not make up more than 30% of your monthly spending.

With the remaining money, it’s recommended that you put 10% to 20% of that towards your retirement, emergency fund, or any other saving accounts you have. Any money that’s remaining is yours to live off – just be sure not to overspend.

It’s worth working out how much money you spend on things to treat yourself with. That way you can know where you may need to cut back on your spending even more.

Live below your means

Just because you have the money, it doesn’t mean you have to spend it. When you earn a decent chunk of change, it’s tempting to splurge just because you can. But by living below your means, you’ll always be spending less than you make.

young couple going through paperwork

Pay off your debt

One of the biggest obstacles on the way towards financial security is debt. If you still have outstanding debts, then greater financial security could be more of a challenge.

Luckily, by combining budgeting and living below your means with one of the two methods below, you could start paying off your debt and heading in the right direction financially. Let’s take a look at the methods that could help you out:

  • The snowball method: Here, you pay off the smallest debt first, before working your way up to larger debts, regardless of interest rates. These kinds of quick wins are a great motivator – there’s no greater satisfaction than crossing off one of your debts from the list you’ve created.
  • The avalanche method: In this method, you’ll take the opposite approach, paying off the debt with the largest interest rate first, before working your way down to smaller debts with lower interest rates. This method lets you pay the least amount of money in interest overall, but you won’t get that same empowering feeling that comes with the snowball method.

Consider the future

Prioritizing your retirement now might seem like a strange ask, but future you will definitely be thankful for your foresight. Whether you want to go traveling, learn a new skill, or just put your feet up, having money will make doing these things far easier.

You may want to research your options through work. Many employers offer a 401(k) or 403(b) plan. If so, you might want to go down that route.

If your employer has nothing in the way of a retirement plan, then you can always open an individual retirement account (IRA).

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

To learn more, visit our homepage or give us a call at +1 (877) 258-0181.

5 Ways to Build Good Financial Habits

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Whether you’re saving for the future or simply want to take better care of your money, it’s never too late to start building good financial habits. And with inflation soaring and the cost-of-living crisis deepening, taking a firm grip of your finances now is a smart move for the future.

Of course, the internet is awash with guides on how to save money and improve your personal finances. But often, these resources provide only surface-level advice, with money-saving tips that are difficult to maintain in the long term.

Our guide is different. Here, while we’re not offering financial advice, we’re sharing help and insights that can change your financial habits for good, with five simple rules that can improve your overall financial health and help you achieve your goals for the future.

1.     Create a Personal Budget and Spending Plan

The first step in improving financial habits is to review your current spending and budgeting so you can identify where changes need to be made. From there, you can create a bespoke spending plan that allows you to live within your means while setting aside money for future saving goals.

A formal spending plan – in which you list your income vs your outgoings – is an effective way to curb unnecessary expenses, prioritize savings, spend wisely, and make sure you have money set aside for emergencies. Take a proactive and transparent approach to ensure your spending plan covers all your outgoings; an honest assessment of your finances is the only way to make definite change.

woman with laptop and paperwork

2.     Consider Your Spending Habits

What do you see when you look back at your recent bank statement? Where is most of your expenditure going? And how can you reprioritize your monthly outgoings to save money and get yourself closer to where you want to be financially?

A good habit to get into is to segment ‘needs’ and ‘wants’. These categories are generally self-explanatory, but it’s important to keep these costs separate since it’s easy to blur the line between the two and justify unnecessary purchases as needs rather than wants.

By actively taking the time to consider and separate needs from wants, you’ll slowly start to form better habits about what to spend your money on. Saying no to a handful of want purchases each month can be a surprisingly effective way to save money and get yourself in a better financial position.

3.     Start Accumulating Savings for Your Later Years

Whether you’re in your twenties, thirties, or forties, it’s important to think about your retirement years and how you’d like to spend them. Because, while putting aside money now might seem like a waste of time – and better spent elsewhere – the accumulative impact of early saving can make a huge difference to your retirement pot, not to mention the sum you’ll need to put away periodically in the future.

Say, for example, you wanted a nest egg of $500,000 by the time you reached 60. Taking a 5% interest rate into account, you’d need to save $327.65 a month over 40 years to reach your goal. By contrast, if you suddenly felt the urge to start saving for your impending retirement at 50, you’d need to save an eye-watering – and perhaps unfeasible – $3,219.94 a month.

This type of compound saving model can apply to all financial aims, not just retirement. Whether it’s the down payment on a new car or the deposit for your first home; saving in small increments over a longer period is a good habit if you don’t want to be burdened by sizeable monthly saving goals.

woman using smartphone to do her finances

4.     Be Mindful of ‘Lifestyle Inflation’

One of the biggest barriers to wealth and savings building is a concept called ‘lifestyle inflation’. This essentially means that the more you earn, the more you spend, with an increase in spending to correspond with your growing salary.

Think about it: when your salary increases, the temptation to spend those extra earnings is only natural. Whether it’s a new car, more holidays, or designer clothes, any increase in earnings is quickly eradicated by a personal need to have more than what you did previously.

This is lifestyle inflation, and it can be a particularly innocuous phenomenon that impacts your ability to save and build wealth for the future. By becoming mindful of it, you can stifle that urge to spend and ensure that you’re using those higher earnings wisely.

5.     Make Wise Investment Decisions

Investing is more accessible than ever and provides savers with a means of protecting their savings from inflation with the potential to make sizeable earnings besides. But before you begin buying stocks and signing up to investment platforms, you need to learn what makes a good investment, how to achieve long-term success, and be willing to put time into staying up to date with the latest investment trends.

For new investors, there are a whole host of different avenues which you can take to get into safe, smart investing. Your first may be to talk to your bank, which might be able to provide guidance and advice on the types of investments that best suit your savings goals and plans for the future.

Elsewhere, there are dozens of resources online which can help you get up to speed with investing, so do your research and dedicate plenty of time to learning the ropes before you commit to a specific investment pot.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

What is the Gold Spot Price?

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The gold spot price refers to the current price of gold. If, for example, you were about to buy gold there and then, the spot price is what you would pay for the specified amount.

So, why do we use the term spot and how does it differ from other ways of valuing gold? If you’ve ever wondered what separates spot price from other asset valuations, our guide is here to set the record straight. Use the links below to navigate or read on below to learn more.

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What Exactly is a Spot Price and How Is It Determined?

A spot price is an immediate valuation of how much it would cost to acquire an asset. Think of it as a right-now price, which shows the value of a commodity if you were to buy it that instant.

We use spot pricing to differentiate current and future values. For example, the spot price of gold could be very different from the futures price; we’ll talk more about the relationship between these later in the guide.

The gold spot price, specifically, refers to the price it would cost to buy one ounce of gold that instant. And since gold values can fluctuate considerably, the per-ounce spot price can vary from one day – even hour – to the next.

How is the Gold Spot Price Determined?

So, how are gold spot prices determined? This is where things can get a little technical, so bear with us while we explain.

Gold spot prices are based on previous futures contracts, which is essentially a determination of how much gold is likely to cost in the coming month or months. The futures contracts themselves are affected by a range of factors, not least the volatility of gold values during a specific period.

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Why are futures contrasts used to determine the gold spot price? Essentially, it gives an indication of how much gold is currently worth based on future values and demand, which are taken from historic economic data.

For example, at the time of writing, the gold spot price is $1,852 per ounce. To reach this figure, you need to look at previous future prices contracts, which give a clear indication of how much an ounce of gold is likely to cost in the months ahead.

Typically, to refine the gold spot price, the futures contract with the highest volume is used to calculate the value. Referred to as the spot month, this is the time when gold trading is predicted to be at its highest, based on a range of factors including historical trading data.

What Affects the Gold Spot Price?

As touched on above, the gold spot price is subject to frequent change, so the price you see today is unlikely to be the same the next. Indeed, in periods when the value of gold is highly volatile and liable to move, the spot price can change hourly, so traders must keep their finger on the pulse to buy and sell at the right time.

So, what exactly affects the spot gold price?

While gold is generally considered one of the safest and most predictable asset classes, its value can still be affected by a range of external forces. From economic data and forecasting based on historic sales patterns, to geopolitical events, comments from high-profile investors, and unanticipated action or involvement from the Federal Reserve; the value of gold can rise and dip based on several key influences.

What controls the gold spot price, monitoring and discovering key trends that affect its per-ounce cost day-to-day? The answer lies in price discovery and trading platforms, like the New York COMEX exchange.

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Such exchanges are designed to monitor gold around the clock, allowing traders to see real-time gold spot prices wherever they’re based around the world. The COMEX exchange is also where investors trade futures contracts, which effectively offer some security over the future price of gold for a specified amount.

Remember, gold is traded on an international scale, so over a 24-hour period, gold transactions are happening in different regions around the world. Having a standard gold spot price ensures global trading can operate smoothly around the clock.

What’s the Difference Been Spot and Futures Gold Pricing?

When looking at current gold prices on market sites and exchange platforms, you might notice a spot price and a futures price. These figures are often different, so what sets them apart?

The spot price is the per-ounce cost of gold if you were to acquire it right now. The futures price, on the other hand, refers to how much the same quantity of gold would be for a period in the future – taking into account interest rates, contract dates, and the strength of market demand at the requested time of acquisition.

The difference between the spot price and future price is often expressed as the forward rate. This allows traders more insights into the best time to buy gold.

 

Glint is a payments platform that enables its clients to buy, sell, save, send and spend real allocated gold and other currencies. Glint is not a trading platform.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.