The Essential Tips on Gold You Should Know
How Much Trusts Can You Place In The Currency?
Although many investors feel that “cash is king” in times of economic uncertainty — this is not exactly true. The world’s reserve currency has seen a downward trend due to the declining confidence in the U.S. dollars and the falling yields from U.S. bonds. On the other hand, gold prices have been steadily inching upwards, showing a clear demand for the safe-haven metal.
While fear of further market decline and economic uncertainty play a part in pushing the gold price, the rise of gold price is further propelled by the excessive printing of fiat currency by the U.S. Federal Reserve to pay off the nation’s debt. This reduced investor’s confidence in the dollar as anyone who owns the currency owns a piece of the nation’s debt.
In a recent interview, Mr Warren Buffett shared his view on the greenback.
“You better own something other than debt.”
The dollar carries the debt of the world as the United State borrows from its own currency by printing billions out of thin air. The increase in supply and reduced interest rate, led to inflation that is hidden in the asset prices rather than consumer prices.
How Gold Can Keep You Out Of Trouble
Gold price rises in time of crisis. During the Great Depression, multiple banks were failing and fear had everyone hoarding gold for protection. The gold price jumped from $20.67/ounce in 1929 to $25/ounce in 1934. A similar price movement was observed while looking back at the recession in 2008 — The gold price raised to $1,000 an ounce before falling under $800 and bouncing back as the stock market crashed.
Fast forward to early 2020, gold price was steadily increasing to $1,575 before the outbreak of Covid-19 pandemic. The pandemic led to a drop in the value and the price of gold has been bullish since then. The value of gold has reached an all-time high of $2,073/ounce in Q3 with some believing that the true peak, $3,000/ounce, has yet to be reached.
Leveraging gold as a hedge for an investment portfolio is a proven tail-hedging strategy in adverse markets during the 2008 financial crisis, European sovereign debt crisis and 2018 December stock market pullback. Gold offers liquidity during times of crisis as it is positively correlated in a risk-on environment, yet becomes increasingly negatively correlated in risk-off environments.
You’re Losing Value By Not Holding Gold
Many say that gold prices reveal the true state of economic health. A high gold price is the signal for an unhealthy economy. Savvy investors are rushing to buy gold as protection against a potential crisis or inflation amidst the dwindling returns from stocks, bonds and real estate. One thing for sure, gold prices can sometimes be used as an indication on what savvy investors know about economic health.
The rising geopolitical tensions and Covid-19 pandemic around the world have driven the economy toward a state of uncertainty. Excessive money printing, an ongoing global pandemic, and geopolitical tensions has sent every nation’s GDP forecast spiraling downhill — the only two safe-haven assets that are trending the opposite direction are old and bitcoin. While it is no secret that gold is a time-tested safe-haven, many do not know that the future of gold is rapidly evolving for the better.
Over the last 2 years, new utilities have been built upon gold with the growth of blockchain. It is possible to store gold in a personal ethereum wallet and make payment in gold. Gold is no longer only an investment tool nor a store of value. With the adoption of blockchain, anything can be backed by gold instead of currency.
Imagine a future where your favorite artwork is backed by real-life gold and traded as non-fungible tokens (NFT) within a digital landscape.
Disclaimer: This article is written to express my own opinions. It is not a piece of investment advice from Digix. Digix’s blog may contain statements and projections that are forward-looking in nature, and therefore, inherently subject to risk, uncertainties and assumptions. Do take into consideration your own unique investment situation, objectives, risk tolerance and investment horizon in any investment decision.
About Digix
Digix, incorporated in Singapore in 2014, is the blockchain company behind the world’s first gold-backed digital asset class. Digix uses blockchain to account for the authentication and provenance of 99.99% investment-grade gold bullions. Physical gold bars are registered on the blockchain, and every 1 gram of physical gold registered is pegged to 1 DGX token. The physical gold bars are kept in vaults located in Singapore and Canada.
Digix recently won the 2020 S&P Global Platts: Precious Metals Industry Leadership Award and was a finalist in the 2016 Singapore MAS Fintech Awards.
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