Gold prices have climbed in the past month, and that shouldn’t come as a surprise. With the Fed printing trillions of dollars as it attempts to offset the economic damage brought on by the coronavirus pandemic, investors have sought the safe haven of going to buy gold to protect their wealth.
Since hitting a low around $1480 per ounce back on March 19, gold has climbed to as high as $1740 an ounce recently. This shows a rise of 17.5% in less than a month.
Not bad for an investment that many use as a store of wealth.
The last time the Federal Reserve printed vast sums of money in an attempt to pull the country through an economic slowdown was 2007 through 2011.
Gold was around $650 an ounce for most of 2007, and as the Fed printed more money, gold hit a high of $1900 an ounce in late 2011.
That’s a gain of nearly 200% in a little more than 4 years.
If, like us, you expect the Fed to continue printing money and are looking to buy gold as either a store of wealth or as an investment, here are the different ways you can own the precious metal.
Gold bullion can be bought online or in stores (coin dealers, pawn stores, etc.). It can be acquired in either gold coins or gold bars. Coins are generally easier to transact with due to their wide acceptance and greater liquidity.
Gold coins are referred to as either a “sovereign” coin or a “round.” Sovereign coins are minted by a government and carry an implied guarantee of their face value. The most common sovereign coins are the 1-oz. Canadian Maple Leaf and 1-oz. American Eagle. Other popular coins are the American Buffalo, South African Krugerrands, Austrian Philharmonic and Chinese Panda.
“Rounds” are produced by a private mint and carry no face value. Here in the US, an example would be gold coins produced by the Franklin Mint. These coins are less popular than sovereign coins but still trade fairly easily.
“Numismatic” gold coins are rare coins that aren’t valued on their gold content but rather their rarity and condition. These are typically only bought by collectors as they can trade for significantly more than the spot price of gold based on demand. Unless you plan on becoming a collector, it’s best to avoid buying numismatic coins.
Gold bars are available in both gram and ounce weights, depending on your preference and budget. Nearly all gold bars will be from private mints.
When it comes to investing in gold via the stock market, an investor has a few options. You can buy gold ETFs (exchange-traded funds) that track the price of gold. The benefits include ease of buying and selling as well as liquidity of the market.
The most popular choices are the SPDR Gold Shares ETF (GLD) and iShares Gold Trust (IAU). These two both seek to reflect the price of gold bullion.
You can also invest directly in large gold mining companies like Newmont Corp (NYSE: NEM), Barrick Gold (NYSE: GOLD) or Kinross Gold (NYSE: KGC). Or you can invest in junior mining stocks, which are typically much more speculative and offer a greater risk-reward. Some options here are Eldorado Gold (NYSE: EGO) and Pretium Resources (NYSE: PVG).
Alternatively, you can also buy ETF for gold miners like VanEck Vectors Gold Miners ETF (GDX) or VanEck Vectors Junior Gold Miners (GDXJ).
There are also leveraged ETFs, which offer 2x or 3x the leverage, but we won’t discuss those here.
As we mentioned earlier, with the Federal Reserve printing money at an unprecedented rate, there are plenty of reasons you should have gold in your portfolio. You can use it either as insurance to protect your wealth or as an investment to generate profits. Research the different options and choose the one that best fits your investment goals.
It’s Not ‘Unreasonable’ To See Gold Prices Soar To $4000 During Bull Market
Despite gaining 35% this year, gold prices have plenty of room to run, says Michael Cuggino, the CEO of the Permanent Portfolio Family of Funds.
Cuggino says that since gold formed a triple bottom from the end of 2015 through November of 2018, it has consistently climbed higher and has really soared this year.
“Ever since then, it has been a gradual move up, then some down. It moves sometimes in big chunks, gives some back, sits around and does nothing, reacts to stimulus, inflation, the value of dollar and euro … but it has had an aggressive move this year,” Cuggino said.
Possible Setbacks Along the Way?
With gold climbing so quickly in a relatively short period of time, Cuggino warns there could be sharp pullbacks along the way. But he says the overall trend is for higher gold prices.
Cuggino says the recipe of continued money printing by the government, the dollar steadily declining and growing inflationary fears mean it would “not be an unreasonable move” to see gold prices soaring to $4,000 an ounce.
He points to a metric that compares gold prices to the closing levels for the S&P 500 index. Gold is currently trading at 0.6 times the level of the S&P 500 and it hasn’t climbed above 0.7 since 2014. But when you go back to August 2011, gold traded as high as 1.7 times the S&P 500, so there’s plenty of upside for gold prices.
Gold Still Has a Long Way to Go
Just adjusting for inflation, gold would need to climb above $2,800 per ounce to equal 1980 levels, which means this gold rally has a long way to go.
Mike Shedlock, the Mish Talk blogger and investment adviser at SitkaPacific Capital Management, thinks the fuel that could push gold to $2,800 per ounce could come from all the hedge funds that are currently on the sidelines and missed the early innings of the gold rally.
“There is ample room for Fear of Missing Out to kick in as the managed money and big spec hedge funds sat out much of the recent rally,” he writes. “And with 105,025 short contracts there is plenty of fuel for a short squeeze too.”
E.B. Tucker, director of Metalla Royalty and Streaming, believes that the current rally will continue, and he thinks gold prices could hit $2,500 by the end of the year.
“Normally I would say [the bull run is overheated] but what I’m seeing in the daily action is that gold is rising in a very measured way and is not meeting much resistance, so when that’s happening you just step out of the way and let it go, that’s what you do,” Tucker said.
Like Cuggino, Tucker says there could be pullbacks in price along the way, but he says we’re in a secular bull market like we may never see again.
“This is a secular bull market. This is a bull market in gold that you’re probably never going to see in the course of your life again.”
Gold Closes Above $2000 Per Ounce For First Time In History
Gold prices closed above $2,000 per ounce for the first time in history. This is the latest signal that a bull market in precious metals is well underway. Since bottoming in late March at $1,498 per ounce, gold has rallied 33%. It did so as governments around the world have turned on their printing presses in an effort to boost their economies.
Investors are betting that the trend will continue in both. They say so because of gold climbing higher as the government print more and more money.
Analysts with Bank of America Global Research have predicted that gold prices will surge another 50%. They say it will happen over the next 18 months. This may push the price of an ounce of gold to $3,000. And it’s not just gold, but all precious metals that stand to benefit according to the analysts.
They add that because of falling bond yields and near-zero interest rates, there are multiple ways that gold could quickly climb to $2,500 per ounce.
Michael Widmer, metals strategist at Bank of America said in a recent research note, “When you’re looking at what levels we would need to see gold at $2500 per ounce, it is combinations like the DXY (the ICE U.S. Dollar Index) at 90 and real rates (10-year Treasury note yield) at minus 2. That will take gold to $2500. The DXY at 85 and real rates at minus 1.75 will also take you to $2500. DXY at 80 and real rates at minus 1.5 also take it to $2500 an ounce,” Widmer said.
Carlo Alberto De Casa, chief analyst at ActivTrades, says that investors are watching to see how the next coronavirus stimulus package shapes up here in the US to see how much additional money the Federal Reserve will be printing. De Casa says any large increase could be the catalyst for the next surge in gold prices.
“It is clear the resistance level of $2,000 is a strong threshold for the price and significant volumes are placed there,” he wrote. “Any news regarding new monetary stimulus from the US Federal Reserve could trigger gold to break up the resistance level of $2,000.”
Horizons ETFs portfolio manager Nick Piquard says the longer the coronavirus pandemic drags on, the more dollars the Federal Reserve will have to print as stimulus.
“Investors are seeing that this COVID crisis isn’t going to go away anytime soon. The cases keep going up globally. And the longer it takes, the more debt needs to be created,” Piquard said. “Congress is debating right now about how many trillions of dollars they’re going to have to spend for a new stimulus after having already spent trillions of dollars.”
Piquard says that will inevitably push gold prices higher. “The U.S. is probably going to have to print a lot of dollars to bail out all this debt. That’s really fuelling the gold rally.”
And once the pandemic is behind us, he says there will be too much stress on the system to raise taxes and pay off all the debt. “After all that money has been spent, it’s not like you’re going to be able to raise taxes to get that money back, or it’s not going to be easy to raise rates. The market is anticipating that the Fed is going to have to do more. And all those things are just beneficial for gold.”
Piquard says there’s an easy way to tell when the gold rally has ended.
“Silver price generally makes new highs towards the end of a gold bull market,” Piquard said. “The reason for that is because silver is more of an industrial metal, which is used more in the economy. So when silver starts rallying, that implies that the economy might be picking up.”
How To Buy Gold For Your Investment Portfolio – Part 2
Yesterday was part one of buying gold and silver coins for your investment portfolio. With gold and silver both on a hot streak, investors are looking for the fastest way to gain exposure to and buy precious metals. You must be prudent and exercise caution so you don’t make a mistake and find yourself with a bad investment.
Do: Buy Gold With Your Savings
Don’t borrow money to buy gold. Use your savings so when you take possession of your gold, it’s yours without any claims against it. With volatile gold prices, you don’t want to be paying back a loan on your gold if the price suddenly dips.
Don’t: Buy Gold With Credit
The current financial system is built on fiat currency and debt with dollars being printed out of thin air. The reason to own gold is the opposite of that. So to purchase gold by using the system it is protecting against defeats the purpose of owning gold. Just use your savings and own your gold outright from day one.
Do: Store Coin Nearby
If a crisis hits and you need access to your gold, you don’t want to be out in public trying to retrieve your gold. So whether it’s in a small safe hidden in your house or buried in your yard, keep your gold nearby for easy access.
Don’t: Store Coins In a Safety Deposit Box
Storing your gold at a bank sounds like a safe decision. But it’s a bad idea for a few reasons. The first is that if there were ever a crisis, you have to go to the bank to retrieve your gold. That assumes the banks will be open during a crisis. Then you have to get access to your safety deposit box, retrieve your coins and safely get them home. That’s a lot of things that need to go right during a crisis. Additionally, gold has been confiscated before. Here in the US, gold was confiscated in 1933 under Franklin Roosevelt. If it were to happen again, gold stored at home, where there is no record if it, is much safer.
Do: Only Invest With Money You Don’t Need For Awhile
Nobody knows when inflation will hit, or the dollar will collapse, or when gold prices will finally take off. But we aren’t trying to time any of those occurrences. The reason to own gold is a long term store of value. So you don’t want to speculate in gold. We could see prices move higher or significantly lower. But long term, history has shown that gold prices steadily march higher as the dollar steadily declines in value. So when buying gold, make sure it’s with money that you don’t need in an emergency. We suggest using savings or other funds that you don’t need to worry about getting access to for at least five years.
If you have any more questions about investing in gold, find a reputable gold coin dealer near you. They will be glad to answer questions.
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