Dear Reader,
The gold spot price currently is 1713 USD. Is gold undervalued? Yes. I think gold should be spot trading at around 2000 USD to reflect the fundamental backdrop. Leading global central banks are printing money, thus debasing fiat currencies. One of the few reliable stores of wealth left is gold. One disadvantage of owning gold is that it does not usually bring interest revenue, when it is stored in a physical form or with a spot account. However, now interest rates driven by the largest central banks all over the world are at record lows, which is further wind in the sales of owning gold.
What is more, gold is the ultimate safe heaven to invest money in. Its recent rise during the coronavirus disease COVID-19 pandemic is a further proof gold remains a sound store of wealth.
That said, I do not think in the short-term gold producing companies' stocks are undervalued. Gold mining companies' miners could quickly get infected in numbers which would constrict their ability to dig for gold and thus depress their market capitalizations. This situation additionally constrains the supply of gold, which further supports the price of gold. In a year, though, I think gold stocks could start rising massively driven by the pending increase in the price of gold.
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Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
Gold is very volatile, silver much more. It has high potential to go up and down.
ReplyDeleteTherefore physical gold is a good investment for the long run and an insurance against counterparty risk.
We need to remember that there are times, when gold could potentially goes south.
Between 2011 and 2018 gold went nowhere and the sun only rose to humiliate the gold bugs, especially the silver investors(Hugh Hendry's quote - "The sun only rose to humiliate me", once said about some of his bets).
Gold price is very politicized and very much manageable via the silver price - the small silver paper market is cornered long time ago by several commercial banks:
http://news.goldseek.com/COT/1588362075.php
For those, who have the courage to go into this volatile and speculative investment, then need to remember that in 2011 silver flash crashed several times to wipe out small speculators trading on margin and is still most hated investment.
Risk in precious metals can be several fold:
- paper market is in the strong hands of a few commercial banks. London Commodity Trading Exchange can always settle contracts in currency without physical delivery.
So if you want to speculate on margin against the big ones you need to remember that the stop losses work, but only if there are no flash crashes, which historically happened not to be the case
- physical delivery is associated with the cost of having a safe deposit box. Gold is a bargain only if you buy more than an ounce - then you buy 6-7 percent above spot price, else for smaller quantities you buy usually 15-20% above spot. Physical silver has also VAT attached to price, because it is considered industrial metal.
So if you buy gold or silver you are locking money for at least 5 to 7 years.
- Hugh Hendry had a very good argument in one of his interviews against gold stocks - if things get really ugly in the real economy, guess what is going to be nationalized - energy sector first. Therefore gold stocks can be a risky investment There is a political risk, which we will have if things get worse over a large period of time to come.
Then we should not exclude also what Harry Dent believes - that we are in a super asset bubble everywhere and things are going to get really deflationary and gold might also go down. Could that happen - sure. If we look at what happened to oil prices.
We are in an ugly deflation and no one spends a penny now.
Having said that, can gold go to 50 thousand dollars in the next three years? Sure it can.
What the savvy investor should do is to have some precious metals in the portfolio.
Precious metals, especially silver, offer cheap optionality of high potential given relatively small risk on the downside.
I think VIX index at 30 dollar still offers a cheap optionality and is still a good hedge should risk start to materialize.