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Category: Gold

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.

5 Questions to Ask Before You Buy Gold

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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.

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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?

woman using smartphone

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.

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.

Young man investing or trading on laptop

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.

man working on laptop

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.

Gold vs Silver Investment: Pros and Cons

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Before we begin, it’s worth noting that at Glint we don’t offer any investment advice. What follows is intended to help you in your understanding of terms as well as potential pros and cons of investing in gold and silver.

Investing in a precious metals like gold or silver may be considered by many as a safe bet for your money. But aside from the initial purchase cost, how do you decide which metal is the right asset for you?

While gold and silver are both precious metals – a type of commodity that is generally considered by many as a safe investment – there are certain factors that affect their long-term value. It’s important to understand what these are before you invest, so you can be sure you’re putting your money in the right place.

Again, Glint doesn’t offer any investment advice, however, to help you choose the right precious metal to invest your money in, we’re taking a look at the pros and cons of gold and silver, and the things you should consider. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

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The Key Differences Between Gold and Silver Investment

Investing in gold and silver may sound comparative, but the reality is there is a lot that separates these two precious metals. Below, we take a look at the key differences between gold and silver that could affect your decision to invest.

Silver is More Readily Available

The volume of new silver pulled from the earth is considerably higher than gold, with close to 1 billion ounces brought into the silver supply market each year. In contrast, the total volume of new gold currently sits at around 120 million ounces per annum.

What does this mean for the value of silver? Because it’s more prevalent and readily available, silver is nowhere near as valuable as gold, and is, therefore, less able to offer as great a long-term return. It is, however, much cheaper to buy, so new investors will need to weigh up whether silver is worth their time and money.

The prevalence of silver also has an impact on its price volatility. With such a liquid market for silver, its value can increase and decrease at a much higher rate than gold, so investors need to be prepared for silver’s unpredictable and volatile value profile.

The Applications for Silver Make it an Important Commodity

Of all the precious metals, silver is among the most widely used in day-to-day applications, particularly in the industrial and manufacturing sectors. Indeed, over 50% of the total supply volume of silver is used for industrial purposes, compared to around 10% of gold.

Why is silver so prevalent within industrial sectors? Firstly, its affordability and ready supply make it much easier to source than other metals. It’s also renowned for its electronic and thermal conductivity, which makes it an indispensable component within the manufacturing sector.

This is all well and good, but why is it important for investors? Given the industrial demand for silver, this goes some way to explaining its widely fluctuating pricing. For example, in a strong economy when demand for raw materials is high, the price of silver goes up; when there’s a recession, demand drops, and with it silver’s value.

In contrast, the value of gold is less likely to suffer such industry-related value volatility. With only a small proportion of total annual gold reserves used in industry, its value is scarcely affected by commercial demand, and more readily influenced by other factors, including economic outlook and currency values.

Silver is Much Larger than Gold – Meaning Significant Storage and Administrative Costs

One of the key differences between gold and silver that many would-be investors fail to grasp is the difference in size and weight between the two precious metals.

Silver is much less dense than gold, with pure silver being up to 84% larger than pure gold by volume. That means that a huge amount more space is needed to store silver reserves than gold – and with that comes significant storage, logistics, and related costs.

To put the size-to-value difference between gold and silver into perspective, here’s a quick example. Say you invested $10,000 in gold; you could hold the total volume of metal in one hand. If, however, you invested the same in silver, you’d need around two medium-sized boxes to carry it all.

The size-to-value variation between gold and silver may not seem all that important from an investment point of view. But with silver requiring significantly more storage, logistics, and transportation infrastructure, administrative costs are something to consider. Add to that the fact that silver requires very specific storage conditions compared to gold (to avoid tarnishing) and managing the commodity safely and securely in the long term can require careful planning and budgeting.

The Pros and Cons of Investing in Gold

Interested in buying gold? Take a look at our essential guide to the pros and cons of this precious metal below to find out if it’s the right commodity for you.

The Pros 

  • Retains its value exceptionally well – gold is considered one of the very best assets in which to invest your money, with reliable and predictable value retention that make it a safe bet in the long and short term.
  • Can be used as an inflation hedge – because gold is a physical commodity, it’s considered a safer means of hedging against inflation. So, when the value of more liquid assets drops due to peaks and troughs in the economy, gold is used as a potential safe haven to avoid the likely losses associated with inflation.
  • It’s a popular portfolio diversification asset – for the reasons listed above, gold is among the most popular assets for investors looking to strengthen their portfolios against financial shock. It allows investors the opportunity to balance the volatility of their other assets against a steadfast, physical commodity, which ultimately provides greater fiscal confidence in times of uncertainty.
  • Investing in gold is easy – compared to other assets (particularly those associated with the stock market) gold is very easy to invest in, making it a popular choice for new and beginner investors. Click here to learn more about the benefits of investing in gold.

The Cons

  • Storage, insurance, and admin fees – while the logistical costs of storing and securing gold aren’t as expensive as silver, they’re no less a consideration. Storing gold in a vault typically means you’ll be subject to storage and insurance fees.
  • Minimal income generation – as with all precious metals, gold isn’t considered an income stream. Instead, it’s more of a security against financial turbulence, which is why investors typically use it to diversify their portfolio.

The Pros and Cons of Investing in Silver

The Pros

  • Affordable – silver is cheaper to buy outright than gold, so if you’re looking to kick-start your investment portfolio on a small budget, it could be a good option.
  • A safe long-term asset – while the value of silver is much more volatile than gold, it’s still a physical commodity, which means it’s a safer place to put your money. That means, much like gold, it can be used to hedge against financial uncertainty.
  • Decent rate of return if sold at the opportune moment – given the huge peaks and troughs in value that silver experiences, you could make a return on your investment if you choose to sell at the right moment.

The Cons

  • Expensive to store and manage – as outlined above, silver is among the most expensive precious metals to store, transport, and manage. Be sure to factor such costs into your investment decision.
  • Minimal income generation – like gold, silver offers little in the way of income, and unless you’re very savvy, you may find it difficult to make a return by selling it on at the right moment.
  • Poor liquidity – because silver is a physical asset, it can’t be easily utilized as day-to-day currency. You can change it into a currency within your country of origin, but this may accrue additional fees and service charges.

 

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 Affects the Price of Gold? Factors and Historical Trends

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Gold has long attracted investor interest, and its appeal isn’t wavering. Gold prices have increased significantly over the past half a century, with growth in exchange traded funds (ETFs) among the factors driving up the cost of the world’s favorite precious metal.

But, as with any commodity, predicting the price of gold isn’t a cut-and-dry process. A huge range of factors affect its per-ounce cost, so those interested in buying the precious metal need to understand how, why, and when its price is likely to fluctuate.

If you’re looking to buy real, physical, allocated gold, that you can spend, but would first like to know how its value could change over time, our guide on what affects the price of gold is for you. In it, we cover the factors that drive gold prices, how gold ties into inflation, and our predictions for what your gold reserves could be worth in five to 10 year’s time.

Ready to get started? Use the links below to navigate or read on for the full guide.

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What Factors Affect the Price of Gold?

While gold is considered a low-risk commodity, its per-ounce price can fluctuate due to several key driving influences. Below, we outline the factors that can affect the cost of gold month on month, year on year.

Demand and Supply

Despite being in use for roughly 5,000 years, gold remains one of the world’s most desirable precious metals – and it’s this which can impact its cost. Global demand for gold remains high, particularly in jewelry and manufacturing industries, so its price is affected by the basic theory of supply and demand (as in, when demand is high, prices rise).

Hedging and Wealth Protection

The innate value of gold means it can weather more economic uncertainty than other commodities, making it a safer bet for investors during turbulent periods. This, in turn, means it’s a popular hedging option, as it helps protect against economic shock from rising inflation and currency devaluation. Consequently, as more investors hedge on gold, its per-ounce price can soar.

The Value of the US Dollar

Since gold is a dollar-denominated precious metal, its per-ounce cost is directly affected by the value of the US dollar. So, when the dollar is strong, gold prices tend to be lower, and vice versa when its value drops. This is because investors want more gold for their money, so may wait until the dollar is weak before purchasing. The eventual knock-on effect is a higher per-ounce price due to increased demand.

Geopolitical Crises and World Events

Remember: gold is considered a safer bet for investors, so in times of global crises or geopolitical disruption, its demand can soar. The metal outstrips all other assets in terms of economic viability and stability. This is because gold’s cost of acquisition and product is rarely hit by significant fluctuations, the element is incredibly durable, and the supply is high enough to comfortably meet demand.

So, it remains the go-to fallback option when economies take a turn. Naturally, this increased demand for gold can cause significant price spikes.

Demand from ETFs

Gold is a popular asset within ETFs, where it’s bought and sold like shares. Unsure what an exchange traded fund is? Think of it as an investment vehicle, whereby investors can buy and sell commodities (such as gold) on a stock exchange like regular stock. Currently, ETFs represent a significant share of total gold demand volume, and thus have a major impact on its per-ounce cost. Note that at Glint, we do not deal with ETFs, the gold you buy with Glint is real, solid, allocated gold. There is nothing that stands between our clients and their gold.

Gold Production

Don’t forget that, unlike other modern assets, gold is a physical commodity available in finite quantities. That means gold production must come into the pricing equation, with the metal’s real-time supply volume affecting cost in the same way as demand. And, as time goes on and mining becomes more complex, we’ll likely see gold’s innate value increase as its raw material becomes more scarce.

The Price of Gold Over Time – And Why it Matters

While gold is considered a stable asset, its value has fluctuated significantly over the past century. But why should this matter? And what can historical gold values tell us about where prices might go in the future?

When choosing the best time to buy gold, investors pay careful attention to historical pricing data. That’s because it can reveal a lot about the gold market’s current state of play, and how the metal’s price could change in the weeks and months to come.

For example, in 2011, the per-ounce cost of gold hit an all-time high of around $2,000. Since then, it has dropped back a little, but many analysts see this as only temporary, and predict that gold will continue this upwards trajectory in the longer term.

Historical pricing data can also help investors spot the right time to buy gold from a demand perspective. For instance, when a weakened US dollar caused the price of gold to drop in the past, at what point did it start to rise again as demand grew? Such analysis can help reveal the best time to buy to guarantee maximum value from your gold.

By understanding historical gold prices, you can make assumptions about the metal’s future trajectory, and make better-informed decisions about the right time to buy and sell.

How to Predict Future Gold Prices

Much like for other commodities, predicting the future value of gold is difficult, and there’s a simple reason for this.

Commodity markets are like auctions. People seek to buy before the price rises, but by doing so, drive the price up. This is the nature of supply and demand within a physical asset market such as gold; demand will always cause prices to go up.

Of course, it is possible to make assumptions about gold’s future value. But as with any investment, there are no guarantees that things will follow as predicted.

Investors typically consider five factors when buying and selling gold. These include:

  1. Supply and demand – is demand likely to increase, causing a spike in value? If so, now is the best time to buy, but waiting could pay off if you’re looking to sell.
  2. Inflation – is inflation set to rise? Gold is a popular hedging tool to protect against inflation, so investors track this figure carefully.
  3. Interest rates – historically, gold prices have dropped as interest rates have risen, so this is another relationship to consider when predicting future changes in value.
  4. Currency rates – as touched on throughout this guide, currency rates are a major deciding factor when it comes to investing in gold. When predicting future price changes, investors typically look at the health of the US dollar, British pound sterling, and the Indian rupee.
  5. Crises and world events – what is happening around the world that could the value of gold? From oil and gas prices to crises such as fuel shortages and pandemics, a huge range of external factors can influence the price of gold, so investors need to carefully assess the state of play before buying and selling.

 

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.

Soap Box: What drives the gold price?

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In response to the tragic events leading up to civil unrest in the US last week, the US dollar gold price rose by 0.9% on Monday 1 June to above $1,741 a troy ounce. For Michael McCarthy, chief strategist at CMC Markets, one reason was clear: “concerns about the unrest in the United States at the moment appear to be weighing on market sentiment,” Reuters quotes him as saying.

Uncertainty coupled with fear underpins a higher gold price. The reverse is true too. When the world feels more at ease with itself, gold’s price drops.
Yet the relationship between fear and the gold price is, like all quasi-emotional links, indirect.

It’s difficult to recall now how shattering was the news of the terrorist attacks on the Twin Towers in New York on 9 September 2001.

One metals’ analyst described the situation that day as “complete pandemonium”.

Yet the gold price responded fairly calmly, going up (as measured by what was then the world benchmark, the twice-daily London fix), by almost 6%, from $271.40 in the morning to $287 in the afternoon.

Gold analysts are as prone to hysteria as the rest of us. The ‘pandemonium’ of that day did not register that much.

A jolting spasm in world affairs is not enough in itself to drive the gold price higher. Context is everything.

Back in 2001 the world was emerging from a lengthy period in which massive gold sales by the world’s biggest gold holders – central banks, closely tied as they are to governments – had been net sellers of gold. Switzerland had led the way by selling 1,550 tonnes of its gold reserves (more than half the total) from 2000.

The relatively weak gold price during the 1980s and 1990s encouraged gold mining companies to sell forward, to lease, their gold to bullion banks. Gold that was not yet dug out of the ground was sold forward to banks in a process known as hedging. These banks then lent the gold to whoever they liked, for a small interest payment. During the long bear market, when gold experienced a prolonged price deadline, that felt like a win-win situation – the gold miners, who expected the future price of gold to be weaker, made more money than they hoped, and the banks made a bit of interest on the lent gold. But this created a paradox of perpetuating the low price.

The gold price has recovered significantly since 2001 and hedging by gold miners has largely dried up. Thanks to the low-to-zero global interest rate environment we are living in, banks do not make money from gold leasing. Also, gold miners have stopped their hedging because the price of gold has been going up. Why sell ounces that are still in the ground at today’s prices, when tomorrow’s price may well be higher?

Many other factors underpin the gold price. Are central banks (the US holds more than 8,000 tonnes) buying or selling gold? Since 2010 they have turned from net sellers to net buyers.

In India, with some 10 million weddings annually, gold is sought after as part of the country’s traditional dowry practice. India typically buys (and stores) a lot of gold, held against a rainy day.

Demand for physical gold has slumped in the past few weeks, hit in part by the high prices and partly in India because the government more than doubled (to 3%) the tax on gold. India’s gold imports in May this year collapsed by 99% (compared to the same month in 2019) because the country has been in ‘lockdown’. The US dollar price of gold in May we should note started the month around $1,700 per troy ounce, slipped a little by 7 May, peaked at $1,764.01 per troy ounce on 18 May, fell again to around $1,700 by 27 May and is now back at above $1,743. This is an astonishingly strong performance during a month when the world’s biggest gold consumer halted its buying.

As any chart of the long-term gold price shows, gold has been since 2002 in a strong bull market, with the price steadily rising. Will it continue to rise? There cannot be any certainty. All that can be said is that the world, which has introduced unprecedented economic stimulus packages worth trillions of dollars – all borrowed money – is experiencing enormous political and monetary uncertainty.

If one is looking for a reason to get a Glint card and put some gold on it, there can be no stronger justification than the example of what’s going on right now – while India stopped its gold buying, the gold price stayed close to its all-time peak in US dollars.

Around the campfire: “Don’t say that – I’ve just bought a house”

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When I had the idea for Glint during the global financial crisis of 2008, it seemed obvious to me that the world deserved a reliable form of money. We all needed a form of money that insulated you from the destructive effects of inflation and from potential breakdowns in the highly leveraged financial system. To me, then and now, the answer was – incorruptible gold.

The everyday man and woman on the street easily understood the idea. My mother would often say: “Son, money doesn’t buy you what it used to.” London cabbies would tell me that “gold, always holds its value”. Experienced high net worth individuals, those who had worked hard through cycles of booms and busts over the last 50 years, they also got it.

But many of the younger analysts and fund managers, those who control the wallets of the big venture capital companies, didn’t get it. They had never experienced double-digit interest rates or difficult recessions.

The 2008 crisis was not allowed to play out. Instead of toppling over the economy was propped up by huge amounts of central bank stimulus. That led to the biggest period of growth seen in over 100 years. No bad thing one might think. Except, what was that growth built on, apart from illusions and credit?

The existing monetary system benefitted some people hugely, even during that 2008 crisis. Easy for them to get a multi-million mortgage; money poured into the funds they managed, fat bonuses returned.

I remember saying to one investment committee that just because house prices were going up in London, it didn’t mean that they always would, and explaining that a house in Japan worth 16 million in 1990 was now, twenty years later, worth 5.5m. The head of the committee looked alarmed and said: “Don’t say that, I’ve just bought a house”. It was probably a very nice and expensive house that was paid for with money lent at very low interest, nearly free, of course only available to those who has a big enough deposit. They were clearly quite short sighted… they didn’t invest in Glint.

Glint continued to find funding from contrarian investors, including many individuals who have worked hard all their lives to build up their wealth. People who have experienced the cycles of boom and bust and who worry about where the global economy and central bank policy is heading.

Covid-19 slammed us into this economic crisis, one that many had expected, but which has turned out to be far worse than anyone imagined. Most people in the investment community that I speak to are now extremely worried about the economy and global debasement of foreign currencies, thanks to the vast government borrowings that have been built up in the space of a few weeks. Suddenly it seems, I am not the daft contrarian, but we at Glint may argue, the visionary.

Around the campfire: A golden immortality

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As a young man I didn’t think about death. Like so many young people I thought I was invincible. Even when I became a young father in my 20’s I never thought about what would happen after I passed away. It wasn’t just because I had no time to think of such things among the nappies, the bottles and running my eCommerce agency. Mortality was for others. Or so I thought.

And then I found God Gold…

From its birth in the heart of a supernova, I learnt that Gold’s nature is constant, never changing. It’s one of the reasons we use it as money, as an incorruptible and honest ledger of what we owe to each other, always retaining that value.

But it was gold’s ability to defy time, age and life…for it to be witness to macro-economic cycles, black swan events and span generations. All those supra-human things about gold made me think about the bigger picture. It very sharply brought home to me the meaning of legacy.

The only thing we can be certain of in the long term is the breakdown of order. Entropy is forever. As if to test us, the good times will never last: a personal or public crisis is always just around the corner. But just far enough out of reach to lull a new generation into a false sense of security and foster unsustainable excess.

So, I look into the eyes of my sons and wonder – what can I do to help them through the inevitable challenges they will face after I am gone? Any ‘words of wisdom’ I may have to offer might sink in, something about how I conduct myself might have a long lasting positive and useful influence on them; but money always helps.

If I manage to save some by the time I die then I won’t put it at risk through an investment in some flaky get-rich-quick scheme but in the only tangible constant they can rely on: gold, money that stands the test of time.

Finally, the Financial Times Gets It

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FT

Reading the comments tacked on to Financial Times’ stories is often more interesting than the stories themselves. ‘Investor Maximus’ pithily added to an FT story on 2 October this year, headlined ‘Why Buffet is wrong to dismiss the benefits of gold’, that “Gold is the asset to hold when every currency is equally crap”. Which hit the nail on the head. When all else seems to be going to hell in a hand cart, then gold remains a friend, perhaps the only friend.

If you do a thorough search of the Financial Times you can find many more stories predicting the end of gold as an investment and store of value, than stories that actually look at some concrete data supportive of gold, such as this one from 2017, which identified that the gold standard – the tying of a fiat currency to some value of gold – “produced fewer catastrophes for Britain”. That latter story concluded: “None of this is to say that the gold standard is necessarily better — stability can be overrated and growth is worth having — but the data suggest the standard arguments against gold, and the standard arguments in favour of the flexible and “counter-cyclical” state we have today, need serious revision.”

The FT, which after all is a news paper, can never make up its mind whether gold is a good thing or a bad thing. Its views on gold, and much else besides, ebb and flow, a tidal depiction of the world as it currently is. It is therefore a bad guide to where the world is headed.

But at least FT journalists do a lot of reading, and make their livings (and reputations) by bringing good ideas to wider notice. One cannot hope to read everything – and the FT is perhaps most useful for pointing readers into wider, and sometimes deeper, knowledge.

Thus a recent piece about gold in the paper – ‘Gold is looking more attractive’ – caught my eye, largely because it was so unusual. Largely based on a speech by Ray Dalio, it correctly identified today’s truly massive public and private indebtedness; the vast quantitative easing (i.e. money-printing) that governments continue to indulge; the end to ‘austerity’ now signalled by all the major political parties contending for votes on the 12 December general election in the UK; the financially engineered (artificially created, that is) ‘growth’ that has been the achievement of governments everywhere from Brussels to Beijing since 2009…All of these mean, says Dalio, that “the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash)” and that the investments “that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold…I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”

The FT being the FT it cannot avoid ending the article with a dismissive reference. “No wonder gold bugs abound” says the journalist. The gold “bug” is the way the FT always dismisses those who hold gold as quasi-bonkers, as if rational thought and gold are incompatible. And no-one is suggesting that all of one’s assets should be put into gold; it is, after all, largely a defensive asset, although one that, thanks to Glint, can now be used as real money.

Yet it must also be asked – who should we trust more? Ray Dalio, the 70 year-old American billionaire (the world’s 58th wealthiest person as of June this year) and co-chairman of Bridgwater Associates, or a rather poorer journalist’s throw-away line in the FT? It’s a rhetorical question, of course.