Gold looks under-priced but ownership in the West is at a notable low, fortunately it has never been easier to buy the yellow metal
Throughout history, gold has traditionally played a role as a stable commodity maintaining value through good times and providing a safe-haven, during times of uncertainty. Today, the West has grown disillusioned with the value of gold, with only 1-3% of US households holding assets in gold and other precious metals, while equities hit record highs and the US dollar rallies in value; abetting the unidirectional gold movement towards the East.
In recent months, the US dollar has strengthened as the American economy continues to perform well under the business-friendly rhetoric evangelised by the Trump administration and their tax break policies. However, continued deficit spending and protectionist trade barriers, could spell an end to the appreciation of the dollar as uncertainty and inflation rises across the world and immense asset bubbles threaten to burst.
Yet as the dollar has strengthened, precious metals have experienced a downtrend over the last two months with investors anticipating an upwards re-pricing of gold as it now appears undervalued.
Under current conditions, market indicators such as the relative strength index (RSI) and the moving average convergence divergence (MACD) are suggesting gold is undersold. Typically, 30 is seen as an indicator of an asset being undervalued, both the RSI and the MACD are below this level, suggesting gold is cheap.
Using the AISC (all-in sustaining cost measure), a relatively new industry measure for mining companies, the profitability of gold mining is much more transparent and, given the current value of gold, miners are much less likely to receive investment to increase the rate at which they extract gold from the ground. In fact, the World Gold Council has suggested that gold must reach $1,500/oz for any new research and development spending. Implying a lack of new supply will start to filter through and push gold prices higher.
Ready for the bullion bull?
The policies of global central banks often dictate gold’s value in fiat currency terms. Despite the Federal Reserve and the Bank of England both espousing more hawkish policies recently, interest rates are slow to rise while inflation seems to be alive and kicking higher. In particular, the rising cost of living and the beginning of a US instigated trade war is unsettling for investors who wish to retain asset value as costs artificially jump due to sanctions.
In essence, now appears to be the ideal time to enter the gold market but one reason gold ownership is seen as notably low at such an opportune time is the difficulty associated with holding physical gold bullion. It is often challenging to exchange and vulnerable to theft. It is also physically heavy and comes with numerous logistical challenges and costs, not least high storage costs.
However, the advent of financial technology now makes it possible to own gold in a secure vault with full liquidity. The Glint app [full disclosure] allows users to purchase, physical, allocated gold at the touch of a button, be it any amount. This gold can then be spent as currency on the Glint Mastercard anywhere in the world. Not only can you now take advantage of gold’s low-price, you can do so from your smartphone.
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