The gold market is an international market for the sale and purchase of gold. Unlike other markets, the price of gold is the same all over the world. The gold market is quite wide, it includes mining, processing, manufacturing, and final consumers of state and private mints.
The history of the gold market goes back thousands of years. The earliest known use of gold coins as currency dates back to 600 BC.
“Investors used gold as a store of value and hedge. When uncertainty mounts or a crisis strikes, investors turn to this security asset. Some recent examples include instability in international politics, the weakening of the US dollar, and the COVID-19 pandemic.”
The price of gold is always fluctuating, but the long-term value of the precious metal is undeniable. Since the United States was once again allowed to legally own gold in 1974, its price has risen steadily regardless of any particular company, country, or market.
Historically, the relationship between gold and currency has been very close. Most countries, including the US, backed their currency with gold. In August 1971, President Richard Nixon introduced the Gold Reserve Act, which prompted the United States to abandon the gold standard and adopt a fiat currency system. Other countries have followed suit and no longer use the gold standard this is the first time in history that no country uses gold (or silver) to back its currency.
Since fiat currency depreciates over time, this gives gold one of its main advantages: it cannot be printed by central banks or politicians and thus provides a stable store of value. Gold is the very definition of money, as it has more value than paper money.
Types of investment gold
Investors can buy two types of gold. Depending on your preference and the amount you have available, there can be a difference between investing in gold coins and bullion.
Gold bars
Gold bars come in a variety of sizes ranging from 1 ounce to 400 ounces. Bars are considered the cheapest way to buy gold, as the premium to their price is usually much lower than that of coins. You end up paying the minimum amount above the spot price.
Golden coins
Like bars, gold coins come in a variety of weights, from the most common 1-ounce versions to 400-ounce bars (commonly used by exchanges and funds). You can even buy gold in as little as 1/100th of an ounce.
Collectible coins also exist, although their value is generally based on factors such as rarity and condition, and not necessarily the price of gold. True, care should be taken, unless you are an educated collector or aspire to be.
You can also buy investment gold jewelry, which differs from standard costume jewelry in that it serves a dual purpose: a beautiful decoration and a monetary instrument.
What type of gold should you invest in?
While this is a personal decision, bullion usually has a lower premium and is ideal for storage, while coins have a higher premium but are more visually appealing. Besides, coins are the best gifts.
When buying coins, start with coins that are produced by government mints and therefore have purity and weight guarantees. In the future, they will be the easiest to sell.
Ingots have less value because they are less labor-intensive to produce and they take up less space, making them ideal for storage. You can store them yourself, but professional storage is the most logical choice.
The price of gold
The spot price of gold fluctuates daily depending on many factors. Stock market activity, monetary policy, inflation, the movement of the US dollar, global politics, and many other factors can affect its price. Investors usually buy gold when uncertainty is high or to protect against almost any kind of crisis.
How do real interest rates affect gold?
Interest rates have a big impact on the price of gold – but maybe not in the way you think. The greatest influence is exerted not by nominal, but by real interest rates.
You can determine it yourself by subtracting the annualized CPI from the 10-year Treasury bond rate; if this figure is negative – in other words, if inflation is above the interest rate – then this is a favorable environment for gold. Of course, the direction or trend of the real interest rate is important.
History confirms this trend, even when interest rates were sky-high in the 1970s, inflation rates were higher, making the real rate negative. And it was one of the biggest gold bull markets in modern history.
Buying gold
Buying gold is easy. Here are some tips to help you.
How to buy gold
As is the case with any investment, the desire to buy at a low price prevails among most investors. Traditionally, there have been certain patterns as to when is the best time to buy gold and other precious metals, as well as how to determine a fair price for a coin or bar.
Once you have decided to make a purchase, make sure you choose a reputable dealer or company. Be wary of prices that seem too good to be true or that are well above market value.
If you decide to buy gold bars, be aware that the price per ounce will be very close to the market value of the precious metal, with little potential premium to cover basic business expenses. With numismatic coins, things are a little different.
Although there are many coins whose value is calculated only based on their weight, rare collectible gold coins will have to pay extra. Before you buy a gold coin, find out its market value. Compare the price with similar coins recently sold or auctioned to better understand if the coin is priced right.
